The Fed joins the AML/CFT program rewrite

On July 7 the Federal Reserve Board proposed amending the AML/CFT program requirements for the banks it supervises (published July 9 at 91 FR 42363, with comments due September 8). The Board voted 6–1 to issue the proposal, with Governor Michael Barr dissenting. It is the Fed’s entry into a rewrite already proposed separately by four other agencies, implementing the Anti-Money Laundering Act of 2020.

The direction of travel is consistent across the proposals. Programs would be judged by effectiveness rather than procedural completeness. Banks would “focus their anti-money laundering resources based on risk, with more attention given to higher-risk customers and activities,” and would “incorporate the Financial Crimes Enforcement Network’s anti-money laundering priorities into their risk assessment processes.” Once a program is established, the Fed says it would concentrate “supervision and enforcement activities on significant failures to implement the program.”

The pivot from process to risk

The risk assessment stops being the binder nobody opens and becomes the load-bearing wall of the program. Everything else must trace back to it.

What to do with the comment window

For community institutions, the promise of this framework is proportionality. Resources go to your actual risk instead of a uniform checklist. The risk is ambiguity, because “effectiveness” and “significant failure” are standards examiners will interpret in the field. The comment window (through September 8) is the moment to ask for the definitions and examples that will constrain that discretion, and to say concretely what a proportionate program looks like at a $500 million bank.