June 30, 2005

U.S. regulators issue Bank Secrecy Act exam manual

WASHINGTON (Reuters) - U.S. banking regulators on Thursdayissued a long-awaited set of unified standards for bankexaminers evaluating financial institutions' compliance withthe Bank Secrecy Act, an anti-money laundering law.

The 330-page manual does not set new rules or offer newguidance, according to the Federal Financial InstitutionsExamination Council, a group of financial regulatory agencies.

Instead, the compilation of existing guidance on a varietyof BSA-related topics, including reporting suspicious activityand possible terrorism financing, is designed to end confusionabout what banks should expect and to ensure examiners stick toa single framework at all financial institutions.

U.S. banks have complained that federal regulators keptmoving the goalposts by using different examination standardswhen checking for BSA compliance -- a subject that has gainedincreased attention in the aftermath of the Sept. 11, 2001attacks.

The concerns have been particularly strong since regulatorslast year imposed high-profile sanctions on Riggs bank, a unitof Riggs National Corp., for BSA compliance failures.

"This is not just a small step. This is a major step towhat we've been asking for the past year, really since thepost-Riggs reaction by all the agencies. This will address alot of those concerns," said John Byrne, a senior official atthe American Bankers Association.

The regulators said the new manual emphasizes banks'responsibility to establish and implement risk-based policies,procedures and processes to comply with the law and keep theirinstitutions from being used for money laundering and terroristfinancing.

Federal banking regulators will begin using the manual inthe third quarter, the regulators said.

"This inter-agency manual is a significant step towardconsistency in the area of anti-money laundering examination,"said Federal Reserve Gov. Susan Bies. "The new manual promotesa shared understanding of the Bank Secrecy Act and anti-moneylaundering regulations and supervisory expectations."

The 1970 Bank Secrecy Act was enacted to prevent U.S. banksand financial service providers from being used asintermediaries for criminal activity, or to hide the movementof money derived from criminal activity. It has won renewedprominence in the aftermath of the Sept. 11 attacks.

Regulators also set dates in August for conference callsand meetings with the banking industry to discuss theexamination manual and compliance programs.

"It's not going to be a silver bullet to (end) allconfusion, but it is certainly a major effort to have all theagencies working together to produce this. There's a commitmenton the part of the government that we've never seen before,"the ABA's Byrne said.

"We're still going to monitor how it works in practice andask our banks to give us examples where they thinkinterpretations are being made up on the ground, but I thinkthis will make it more difficult for that to occur becausethere will be something to point to," he said.