Federal Reserve Proposes AML/CFT Program Rule for Board-Supervised Banks: Implications for Cross-Border Banking Compliance
The Federal Reserve issued a proposed rule requiring Board-supervised banks to establish and maintain effective, risk-based AML/CFT programs. The proposal requires documented risk assessments, incorporation of AML/CFT priorities, ongoing customer due diligence, independent testing, employee training, and designation of a responsible AML/CFT officer accessible to U.S. oversight. Comments are due 60 days after Federal Register publication.
Development Summary
Agency: Federal Reserve
Subject: AML/CFT program requirements for Board-supervised banks
Comment deadline: 60 days after Federal Register publication
Status: Proposed rule — comment period open
Core Requirements of the Proposed Rule
The Federal Reserve's proposal would require Board-supervised banks to establish and maintain AML/CFT programs incorporating the following elements:
Documented risk assessment
Banks must prepare written risk assessments that systematically evaluate and document money laundering and terrorist financing risks. The risk assessment must cover customer profile, products and services, geographic footprint, and delivery channels.
Incorporation of AML/CFT priorities
FinCEN's national AML/CFT priorities must be incorporated into the bank's program. This requires banks to align program design with federally identified risk priorities.
Ongoing customer due diligence (CDD)
Continuous monitoring of customer relationships and updating of customer risk profiles. Includes beneficial ownership identification and verification.
Independent testing
Periodic independent testing — by internal audit or external auditors — of the effectiveness of the AML/CFT program.
Employee training
Regular training for relevant personnel on AML/CFT requirements and suspicious activity identification.
Responsible AML/CFT officer
Designation of an AML/CFT compliance officer with adequate authority and resources who is accessible to U.S. oversight. For foreign banks, this requirement is particularly critical — the U.S. branch or agency must have an AML/CFT officer who is resident in and accessible from the U.S.
Special Considerations for Foreign Banks
The proposed rule directly affects foreign banks with U.S. branches and agencies supervised by the Board. Key points to note:
Accessibility to U.S. oversight
The "accessible to U.S. oversight" AML/CFT officer requirement makes it more difficult for foreign banks to designate compliance personnel based at the parent institution as the responsible AML/CFT officer for the U.S. branch. The U.S. branch may need its own AML/CFT governance structure.
Scope of risk assessment
U.S. branches of foreign banks must incorporate risk factors specific to their operations — correspondent banking relationships, cross-border payment flows, and high-risk jurisdiction exposure — into their risk assessments.
Correspondent banking
Correspondent banking relationships are treated as a particularly high-risk category in AML/CFT risk assessment. Turkish banks' U.S. correspondent banking relationships may require more rigorous documentation and monitoring under this rule.
Practical Implications: What Institutions Should Do
Banks and bank holding companies
- Compare the existing AML/CFT program against the proposed rule requirements; conduct a gap analysis
- Update risk assessment documentation and evaluate alignment with FinCEN priorities
- Review the AML/CFT officer's authority, resources, and accessibility
- Evaluate the scope and frequency of the independent testing program
U.S. branches and agencies of foreign banks
- Assess the requirement to designate a U.S.-resident and accessible AML/CFT officer
- Prepare a U.S. branch-specific risk assessment
- Incorporate correspondent banking relationships and cross-border payment flows into the risk assessment
Fintech partners and payment service providers
- Assess how bank partners' increased AML/CFT requirements will affect fintech relationships
- Review KYC and transaction monitoring capabilities
Cross-border clients
- Update banking relationship documents, compliance representations, and customer onboarding files
- Review transactions or relationships that may be classified as high-risk customer categories
Significance for Turkish-American Cross-Border Practice
This proposed rule is directly relevant to the Turkish banking sector and Turkish-American cross-border financial transactions in several respects:
Turkish banks' U.S. correspondent banking relationships
Turkish banks' U.S. correspondent banking relationships may require more rigorous AML/CFT documentation and monitoring under this rule. U.S. correspondent banks are likely to request more comprehensive AML/CFT program documentation from Turkish counterparts.
FATF assessments and Turkey
Turkey's FATF evaluation processes and AML/CFT framework developments directly affect U.S. banks' risk assessment of Turkish counterparts. This rule will require U.S. banks to place their Turkey risk assessment on a more systematic and documented footing.
Turkish companies' U.S. banking relationships
Turkish companies with U.S. bank accounts or credit relationships may face more comprehensive KYC and beneficial ownership documentation requests. Onboarding and periodic review processes are expected to become more rigorous.
Turkish-American M&A and investment transactions
In Turkish-American transactions financed by U.S. banks, bank compliance requirements may affect closing processes and documentation obligations.
This post is part of ULF New York’s monitoring series tracking U.S. regulatory developments and Turkish-American cross-border practice areas. It does not constitute legal advice.