New US AML regulations: What credit unions need to know

Stephanie Jones Date published: Aug 09, 21

Credit unions in the US have seen increased directives surrounding anti-money laundering (AML). In November 2020, The Financial Crimes Enforcement Network (FinCEN) passed a final rule, expanding AML regulations requirements to non-federally insured credit unions.

Accounting for around US$3 billion, the annual cost of money laundering and associated crimes in the US is not a figure to take lightly. The frequency and complexity of financial crime have increased significantly over the past few years, due to factors such as an intensified reliance on online banking and payment activities.

Vulnerabilities in technology have enabled criminals to dodge AML techniques more easily, providing credit unions with new imminent risks that they must mitigate.

Another emerging threat is the increase of ‘high-risk’ clients, such as money services businesses (MSBs) and cannabis-related companies. Customers like these have turned to credit unions due to the heightened regulations surrounding banks, making credit unions the go-to for their financial needs. This has raised uncertainty in terms of regulatory oversight and the compliance processes put in place.

In June 2021, FinCEN released a white paper titled ‘Anti-Money Laundering and Countering the Financing of Terrorism National Priorities’ in which they listed cybercrime, fraud, and corruption as some of their main priorities for financial firms and their AML compliance.

But what are the associated dangers of money laundering, and how can credit unions meet the requirements of the new AML regulations?

The risks of money laundering

Money laundering is not a victimless crime. Some of the risks to society include its ability to undermine the integrity of national economies and financial systems, and to corrode the faith in democratic structures.

With the fast development of new technologies, drug trafficking organization activities, and cross-border transactions, regulators across the world have increased their AML compliance demands, which has been a significant burden to credit unions.

If a credit union is fined for non-compliance with AML rules, it is not just a substantial bill they are left with. Criminal proceedings and damaged reputations may lead to the loss of a firm's member base, and a worst-case scenario could result in the permanent closure of the business.

Fulfilling the regulatory obligations against financial crime may be all the more daunting for credit unions due to the introduction of new regulations put in place in late 2020, in which previously exempt financial institutions must now implement AML compliance programs.

What are the new AML compliance regulations?

FinCEN have now made the establishment of an AML compliance program mandatory for all credit unions.

The new rule requires identity verification requirements for all customers, along with the identification of beneficial owners of new legal entity customers. Credit union specific rules include reporting cash transactions over $10,000, accurately identifying members performing these transactions, and maintaining a clear "paper trail" with an adequate record of these transactions.

Credit unions should now rethink their AML compliance programs, viewing compliance as a way to best enable business practices rather than just a regulatory requirement. Innovation and investment in this area are the only ways firms can reduce their risk exposure and strengthen their response to money laundering.

What do credit unions need to do?

Credit unions are now required to implement an AML program approved by their board of directors. At a minimum, this program must:

1. Establish internal controls

A system of internal controls must be put in place to monitor and ensure AML compliance. An individual or individuals must be designated to coordinate and monitor these controls, with appropriate training provided.

2. Conduct risk-based audits

Through audits and risk assessments, credit unions can begin to identify, assess, and understand the risks that they are exposed to and adopt appropriate mitigation measures in harmony with the level of risk. A proactive approach to this must be taken in order to gain in-depth knowledge of specific risks and how they can affect the business.

3. Continuously monitor results

With the rapid advancement of criminal activity, credit unions should take the time to continuously review their internal controls to understand the different threats and the effectiveness of compliance controls.

In short, compliance with AML regulations has always been a complex, resource-intensive challenge for credit unions, and all signs suggest that this will only intensify in the years to come. But through digitally enabled audit processes, credit unions can be more effective in protecting their business and meeting their regulatory obligations. Download our latest case study to find out how FORUM Credit Union are fighting financial crime with the help of Pentana Audit.

FORUM Credit Union fight financial crime with Pentana Audit

Find out how FORUM Credit Union used technology to help protect their business and meet regulatory obligations.