The Federal Reserve Board issued a proposed rule that would require Board-supervised banks — state member banks, bank holding companies, and U.S. branches and agencies of foreign banks subject to Federal Reserve oversight — to establish and maintain formal, risk-based anti-money laundering and countering-the-financing-of-terrorism (AML/CFT) programs.

The proposal is part of a broader interagency effort to modernize the Bank Secrecy Act compliance framework following the Anti-Money Laundering Act of 2020, which directed federal banking agencies to update their AML/CFT program rules to align with FinCEN's revised priorities and risk-based approach.

Comments are due 60 days after publication in the Federal Register.

The proposed rule would codify and expand existing AML/CFT program expectations. Key elements:

Risk Assessment Banks would be required to conduct and document a formal AML/CFT risk assessment — identifying the bank's specific money laundering and terrorist financing risks based on its products, services, customers, geographies, and delivery channels. The risk assessment must be updated periodically and whenever material changes occur.

Incorporation of AML/CFT Priorities Banks would be required to incorporate FinCEN's national AML/CFT priorities — currently including corruption, cybercrime, human trafficking, drug trafficking, fraud, and proliferation financing — into their risk assessments and program design.

Customer Due Diligence (CDD) The rule would require ongoing CDD, including beneficial ownership identification for legal entity customers, risk-based enhanced due diligence for higher-risk relationships, and periodic review of customer information. This aligns with FinCEN's existing CDD rule but would now be embedded in the Federal Reserve's own supervisory framework.

Independent Testing Banks would be required to conduct independent testing — either by internal audit or qualified external parties — of the AML/CFT program's effectiveness. Testing must be risk-based and commensurate with the bank's risk profile.

Employee Training Ongoing, role-specific AML/CFT training for all relevant personnel, with documentation of training completion.

Designated AML/CFT Officer Banks must designate a qualified AML/CFT officer who is accessible to U.S. supervisory authorities. For U.S. branches and agencies of foreign banks, this requirement has particular significance — the designated officer must be reachable by Federal Reserve examiners, not merely a foreign-headquartered compliance function.

Correspondent Banking Correspondent banking relationships are among the highest-risk categories under AML/CFT frameworks. The proposed rule's emphasis on risk-based CDD and ongoing monitoring will likely intensify due diligence requirements for correspondent relationships, including more frequent review of foreign bank respondents' own AML/CFT programs, ownership structures, and geographic risk profiles.

For Turkish and other foreign banks with U.S. correspondent relationships, this means their U.S. correspondents will face increased supervisory pressure to document the adequacy of their due diligence on the relationship — which in turn means foreign banks should expect more detailed questionnaires, more frequent certifications, and potentially more restrictive terms in correspondent agreements.

U.S. Branches and Agencies of Foreign Banks The designated AML/CFT officer requirement is particularly significant for U.S. branches and agencies of foreign banks. The officer must be accessible to U.S. supervisory authorities — meaning a compliance function located entirely outside the United States will not satisfy the requirement. Foreign banks operating U.S. branches should review their compliance governance structures now.

Fintech Partners and Banking-as-a-Service Banks that provide banking-as-a-service infrastructure to fintech companies will face heightened scrutiny of their AML/CFT oversight of fintech partners. The proposed rule's risk assessment requirements will require banks to evaluate the AML/CFT risks presented by their fintech relationships and document how those risks are managed.

High-Risk Customer Categories The rule's emphasis on risk-based CDD and FinCEN priority areas will likely result in more intensive onboarding and monitoring for customers in categories identified as higher-risk: politically exposed persons (PEPs), customers in high-risk jurisdictions, cash-intensive businesses, and customers with complex ownership structures.

• Banking relationship documents: Review correspondent banking agreements, account agreements, and compliance representations for provisions that may need updating as the rule is finalized.
• Beneficial ownership documentation: Ensure beneficial ownership information for legal entity customers is current, accurate, and accessible.
• Onboarding files: Review the completeness and currency of customer due diligence files, particularly for higher-risk relationships.
• Compliance governance: For U.S. branches of foreign banks, assess whether the AML/CFT officer designation requirement can be satisfied with current governance structures.
• Vendor and fintech contracts: Review AML/CFT representations and audit rights in contracts with banking service providers.

The Federal Reserve is accepting public comments for 60 days after Federal Register publication. Industry participants may submit comments on the proposed rule's scope, compliance burden, and implementation timeline.

The Federal Reserve's proposed AML/CFT rule represents a significant formalization of existing supervisory expectations. For Board-supervised banks and their clients — particularly those with cross-border relationships, correspondent banking arrangements, or complex ownership structures — the proposal signals tighter documentation, more intensive due diligence, and increased supervisory scrutiny. Reviewing banking relationship documents, onboarding files, and compliance governance structures now, before the rule is finalized, is the practical response.