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FinCEN Weighs Path to a No-Action Letter Process

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<p>On Friday, FinCEN published an Advance Notice of Proposed Rulemaking (ANPRM) as it further considers implementing a no-action letter process related to anti-money laundering compliance. The ANPRM follows a 2021 FinCEN assessment and a Report to Congress about the feasibility and usefulness of such a process. </p><h4>June 2021 – No-Action Letter Report to Congress</h4><p>Under Section 6305(a) of the Anti-Money Laundering Act of 2020 (AMLA), Treasury’s Financial Crimes Enforcement Network (FinCEN) is required to assess whether a no-action letter process should be established for inquiries concerning the application of the Bank Secrecy Act (BSA) and other anti-money laundering (AML) and countering the financing of terrorism (CFT) laws and regulations to specific conduct(s).</p><p>In consultation with the Attorney General, the federal functional regulators, state bank and credit union supervisors, and other federal agencies, FinCEN submitted on June 28, 2021, a <a target="_blank" href="https://www.fincen.gov/sites/default/files/shared/No-Action%20Letter%20Report%20to%20Congress%20per%20AMLA%20for%20ExecSec%20Clearance%20508.pdf">Report to Congress</a> that concluded it would be useful for FinCEN to implement a no-action letter process in response to requests regarding the application of AML/CFT laws to specific conduct and to supplement the exiting forms of regulatory guidance and relief that FinCEN already provides. According to the Report to Congress, a no-action letter process would “promote a robust and productive dialogue with the public, spur innovation among financial institutions, and enhance the culture of compliance and transparency in the application and enforcement of the BSA.”</p><p>FinCEN currently offers two forms of regulatory relief:</p><table cellspacing="5" cellpadding="5" border="2" class="mb-3 ml-sm-3" style="max-width: 300px;float: right;text-align: right;"><tbody><tr><td style="background-color: lightgray;"><p class="text-center">In contrast to <em>administrative rulings</em> and <em>exceptive or exemptive relief</em>, a no-action letter is an exercise of enforcement discretion in which FinCEN staff would typically issue a letter indicating its intention not to take or recommend enforcement action against the submitting party. However, such intention of non-enforcement would be subject to the specific conduct presented in the submitting party’s request. Generally, such letters address only prospective activity not yet undertaken by the submitting party.</p></td></tr></tbody></table><ol><li><em>Administrative rulings</em>, which interpret the relationship between a certain FinCEN regulation and a specific situation for which a ruling has been requested. Administrative rulings have precedential value when published by FinCEN; and</li><li><em>Exceptive or exemptive relief</em> from the BSA or its implementing regulations, which applies only as expressly stated in the order of authorization from FinCEN and which may be revoked in the sole discretion of the Secretary of the Treasury.</li></ol><p>In the Report to Congress, FinCEN found that a no-action letter process would be most “effective and workable” if limited to FinCEN’s exercise of its own enforcement authority, but that consultation with other regulators may be appropriate. While FinCEN recognized the benefits of a single no-action letter process that addresses any AML/CFT law, FinCEN noted that it does not have authority to administer or enforce all AML and CFT laws, and that a formal cross-regulator no-action letter process would be logistically challenging and time-consuming.</p><h4>June 2022 – Advance Notice of Proposed Rulemaking for No-Action Letter Process</h4><p>On June 3, 2022, almost exactly one year after its Report to Congress, FinCEN issued an <a target="_blank" href="https://public-inspection.federalregister.gov/2022-12048.pdf">Advance Notice of Proposed Rulemaking</a> to solicit public comment on questions relating to the implementation of a no-action letter process. As Acting Director Him Das stated in <a target="_blank" href="https://www.fincen.gov/news/news-releases/fincen-issues-advance-notice-proposed-rulemaking-no-action-letter-process">FinCEN’s Press Release</a>, “[a] no-action letter process has the potential to spur innovation and enhance overall effectiveness of the AML/CFT framework and the implementation of financial institutions’ compliance programs” and he emphasized that FinCEN encourages “public comment on how the implementation of a no-action letter process can best achieve these objectives reflected in the Anti-Money Laundering Act of 2020.”</p><p>The ANPRM closely follows FinCEN’s findings in its Report to Congress, but also notes that the addition of a no-action letter process cannot be assessed in a vacuum, because it may affect other forms of regulatory guidance and relief that FinCEN already offers. The ANPRM specifically seeks public input on whether this process should be implemented, and if so, how a no-action letter process should interact with these other tools.</p><p>In addition, the ANPRM has a total of 44 questions for public comment with regard to:</p><ol><li>Additional considerations that were not addressed in the Report to Congress;</li><li>Contours and format of a FinCEN no-action letter process;</li><li>FinCEN’s jurisdiction and no-action letters;</li><li>Changed circumstances on which no-action letters are originally based;</li><li>Revocation of no-action letters;</li><li>No-action letter denials and withdrawals;</li><li>Confidentiality of no-action letters;</li><li>FinCEN’s requirements to consult with other regulators or law enforcement agencies before issuing a no-action letter; and</li><li>Other questions related to no-action letter.</li></ol><p>The comment period for the ANPRM ends on August 5, 2022 and “FinCEN strongly encourages all interested parties, including those that may want to participate in the no-action letter process, if implemented, to submit written comments.”</p><p>A no-action letter process could be a valuable tool for financial institutions that are required to establish and maintain an AML program. This tool could aid in providing clarity and comfort when seeking to comply with BSA requirements and regulatory expectations. Financial institutions’ obligations and regulators’ expectations are not always clear when developing and implementing new products and services, in particular when they are blockchain or Fintech-related. However, it wouldn’t be a big surprise if FinCEN ultimately takes a rather conservative approach when issuing no-action letters under the new process.</p>