The New York Department of Financial Services (DFS) has proposed new regulations setting forth minimum standards for anti-money laundering (AML) transaction monitoring and filtering systems. The regulations, proposed December 1, 2015, would apply to banks, thrifts, and foreign bank branches under DFS jurisdiction, along with check cashers and money transmitters. 

Although perhaps more stringent in some respects, the proposed regulations’ “transaction monitoring” and “watch-list filtering” program requirements do not appear to deviate significantly from standards applied by federal financial regulators to depository institutions. Given the difficulties that depository institutions have encountered complying with the federal standards, check cashers and money transmitters will likely encounter difficulties complying with these new regulations.

The regulations would also require each affected company’s chief compliance (or equivalent) officer to personally attest annually to the compliance of the company’s anti-money laundering programs. This requirement has no known counterpart in any federal or state Bank Secrecy Act (BSA)/AML laws.

The certification requirement raises significant concerns regarding the potential personal liability of a certifying officer whose company is subsequently determined to be non-compliant.  In all but perhaps the very smallest companies, the chief compliance officer of necessity relies on reports and information received from subordinates and others. Although the mandatory certification form accompanying the proposal seems to acknowledge this reality by stating that the certification is made to the best of the attesting officer’s knowledge, proposed Section 504.5 provides that any individual who submits an “incorrect or false” certification may be subject to criminal prosecution. As such, it appears that a certifying officer who in good faith submits a certification later determined to be erroneous may nonetheless violate the regulation. Removing this ambiguity by expressly limiting individual criminal liability to instances of intentionally false filings is appropriate.  

The DFS press release states that the certification requirement is modeled on the federal Sarbanes-Oxley Act (SOX), an apparent reference to the internal control certifications required by Section 302 of that Act. DFS’s mandatory form of annual certification, however, is broader than the SOX certification, and therefore creates greater potential liability for the certifying officer.

Section 302 requires corporate officers to certify that they are responsible for, have implemented, and have identified and reported any identified deficiencies in certain internal financial reporting control systems. By contrast, the DFS’s certification form states, without significant qualification, that the company’s AML monitoring programs comply with all of the regulations’ substantive requirements. Certifications more closely resembling those under Section 302 would be more consistent with the apparent intent of the DFS’s proposal. 

Comments on the proposal will be due within 45 days following its publication in the New York State Register.   

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance. The group advises bank and non-bank financial institutions on regulatory compliance and administrative enforcement actions and investigations and has represented financial institutions targeted by the government for alleged BSA violations.

For more information, please contact Consumer Financial Services Group Practice Leader Alan S. Kaplinsky, James Kim, Beth Moskow-Schnoll, or the attorney with whom you regularly work.

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