NASCUS Comments on FinCEN No-Action Letter Process

August 5, 2022

Enforcement and Compliance Division
Financial Crimes Enforcement Network
P.O. Box Vienna, VA 22183

Re: NASCUS Comments – Docket Number FINCEN-2022-0007; No-Action Letter Process

Dear Acting Director Das:

The National Association of State Credit Union Supervisors (NASCUS)[1] submits this letter in response to the Financial Crimes Enforcement Network’s (FinCEN) request for comment on Docket Number FinCEN 2022-007: Advanced Notice of Proposed Rulemaking (ANPRM) titled “No-Action Letter Process.”[2]

Section 6305 of the Anti-Money Laundering Act of 2020 requires the Director of FinCEN, in consultation with the Attorney General, Federal functional regulators, State bank supervisors, State credit union supervisors, and other Federal agencies (collectively, the “Consulting Parties”), to undertake an Assessment on whether FinCEN should establish a process for the issuance of no-action letters. FinCEN completed this assessment and issued a report to Congress June 28, 2021.

We commend FinCEN for its outreach efforts to-date with state credit union regulators.

Consultation and Information Sharing with State Supervisors

As discussed in FinCEN’s report to Congress, NASCUS assisted in facilitating consultation with the various State Credit Union Supervisors[3]. Forty-five state regulatory agencies are the primary supervisory points of contact for BSA/AML in 1932 state credit unions (SCUs) across the country.[4] An overwhelming majority of SCUs are examined every twelve to eighteen months by their state regulator. An examination by the federal insurer, NCUA, may be conducted in conjunction with the state regulator dependent upon the size and complexity of a credit union. However, many state credit unions are only examined by the NCUA every five years.

Furthermore, state credit unions that only carry private share insurance are examined exclusively by their state regulator.

The highly regulated and supervised relationship of the state credit union system distinguishes it from other regulatory systems where NAL programs play a more prominent role. It is also important to note, with respect to state-chartered credit unions, the federal share insurer’s supervisory role is primarily one of reviewing Reports of Examination issued by state regulatory agencies. [5]

The ANPRM briefly addresses FinCEN’s assessment that state regulators should have a consultative role in the No-Action Letter process but does not indicate the extent in which the agency would coordinate with state credit union regulatory agencies if a NAL program were to be implemented.[6] As NASCUS and states have previously expressed, a NAL program will not work effectively without the close coordination and cooperation between FinCEN and the state and federal regulators. That coordination must include the development, implementation, and administration of a NAL program.

In the Report to Congress, and pursuant to Section 6305 of the AML Act, FinCEN analyzed a timeline for a no-action letter process during which the agency would reach a final determination on a request submitted by an institution. FinCEN presented the following steps:

  1. FinCEN receives a request for a no-action letter and preforms an initial review of the request, including for completeness, accuracy, and conformity with relevant rules and regulations FinCEN puts in place for no-action letter requests.
  2. FinCEN determines the relevant regulators or agencies (including State or other regulators) that also regulate the entity and may have an interest in the request, FinCEN shares the request.
  3. FinCEN consults internally on the request.
  4. FinCEN consults with the appropriate regulators, departments, and agencies on the request.
  5. FinCEN makes a final decision on the request.
  6. FinCEN drafts the no-action letter, denial, or other response and transmits it to the submitting party.
  7. FinCEN may elect to post the no-action letter on its website.

As part of the NAL program and the steps listed above, FinCEN should also provide a clear framework for NALs that includes clear timeline estimates, a sunset date, and period of time in which an applicant may withdraw an NAL request.

. If, during the initial consultation process, the state regulator’s findings or determination differ from that of FinCEN, what is the mechanism for communicating the decision to the state regulator? NASCUS urges FinCEN to commit to issuing a NAL only with the concurrence of the prudential regulator that the situation is as presented in the application. State regulators oversee compliance with BSA and conduct examinations of their institutions to ensure the integrity of the financial system from bad actors.

Inclusion of state regulator perspectives in the process will ensure continuity of regulatory expectations and provide greater industry clarity of and confidence in compliance obligations. Additionally, the inclusion of state regulators in the process would provide the added benefit of ensuring the state regulators are kept apprised of the latest FinCEN guidance. Absent full integration of state regulators into the NAL process maintaining a seamless regulatory and supervisory framework would be extremely difficult.

Public Disclosure of No-Action Letters

A benefit of NAL programs in other industries is that publication of an NAL serves as guidance to the wider industry and may facilitate broader adoption of innovative techniques. However, in the context of BSA/AML, making NALs public would require FinCEN to reconcile the strict confidentiality related to certain reporting requirements under the BSA/AML. Additionally, making certain information public regarding innovative monitoring approaches could result in bad actors altering their behavior or otherwise changing their tactics based upon publicly gleaned information about monitoring and compliance programs.

In balancing the competing priorities of encouraging innovation by publishing NALs, and prudence with respect to providing bad actors a roadmap to circumventing anti-money laundering safeguards, we recommend FinCEN err on the side of caution. All information associated with an NAL request, including information, shared between FinCEN, and state and federal regulators should be treated as confidential information, subject to protections under existing MOUs between state and federal regulatory agencies and FinCEN.

Should FinCEN determine that benefits resulting from the disclosure of NALs compel some form of publication, such disclosure may not include any state supervisory information upon which a determination relied. Furthermore, we would urge FinCEN to limit the disclosure to redacted general information. In the alternative, FinCEN could consider using the facts of a NAL request as the basis for agency-issued guidance.

Eligible Activities 

FinCEN has asked what topics, transaction types, customer types, geographies, products, services, or other matters would be expected to be the subject of no-action letter requests. FinCEN must clearly define what types of activities are eligible for a No-Action Letter. Specifically, would the program cover only compliance technology issues or substantive monitoring, recordkeeping, and reporting compliance issues unrelated to technology implementation? In defining the scope of these activities FinCEN must prioritize innovation, artificial intelligence, machine learning, and other intelligence-sharing technologies and activities.

Revocation of No-Action Letters

The Report to Congress discusses the consideration of additional procedural safeguards to assist in protecting against potential increased illicit finance risk associated with the no-action letter process. Specifically, the report states, “FinCEN may consider requiring a submitting party to attest under penalty of perjury that the information contained within the submission is accurate and complete; including express language in the no-action letter that the letter is being issued on the facts as represented, which the submitting party confirms are accurate and complete; and making the no-action letter revocable by FinCEN at its sole discretion.”

If FinCEN will seek to revoke an NAL at their discretion, they must clearly define what the process for revocation or termination would be.

Conclusion

We thank FinCEN for the opportunity to submit the above recommendations for consideration during the development of a NAL program. NASCUS encourages the agency to continue its coordination and consultation with state regulators as public comments on the ANPRM are reviewed. Given FinCEN’s reliance on state regulator supervision of credit union compliance to the BSA/AML, a potential NAL program simply cannot be successful without full integration of the state regulators into every aspect of the process. Furthermore, given the fluid nature of examination and supervision, a NAL program must have enough flexibility to address those rare circumstances where the quality of a covered entity’s BSA/AML program deteriorates or circumstances upon which a decision was based change.

Respectfully,

Sarah Stevenson
Vice President, Regulatory Affairs

[1] NASCUS is the professional association of the nation’s forty-five state credit union regulatory agencies that charter and supervise over 1900 state credit unions. NASCUS membership includes state regulatory agencies, state chartered and federally chartered credit unions, and other important stakeholders in the state system. State chartered credit unions hold over half of the $2.2 trillion assets in the credit union system and are proud to represent nearly half of the 129 million credit union members.

[2] 87 Fed. Reg. 34226 (June 2022)

[3]FinCEN Report to Congress, Assessment of No-Action Letters in Accordance with Section 6305 of the Anti-Money Laundering Act of 2020

[4] Five states have no state credit unions: Arkansas, Delaware, Hawaii, South Dakota, and Wyoming.

[5] While the presence of the NCUA on site to conduct or participate in the examination of a federally insured state-chartered credit union (FISCU) varies from year to year and state to state, NCUA generally is only onsite in less than 30% of all FISCUs annually.

[6] “No-Action Letter Process” 87 Fed. Reg. 34226 (June 2022).