The Cayman Islands Monetary Authority has written to the Bankers Association about two regulatory changes in the US affecting local and regional banks.
The CIMA letter referred to the passing of the Anti-Money Laundering Act 2020 on January 1, 2021, which will expand the powers of subpoena of US government regulators over foreign correspondence accounts, even if there is no connection with the US.
The second problem raised by the regulator concerns changes to the so-called “travel rule” and the keeping of records under the Banking Secrecy Act. The travel rule states that financial institutions that transfer money across international borders must collect and share information about the sender and recipient.
The Federal Reserve Board and the Financial Crimes Enforcement Network (FinCEN) proposed lowering the travel rule threshold from $ 3,000 to $ 250 for money transfers from financial institutions that start or end outside of the United States last October.
The travel rule is an important tool in the fight against money laundering, terrorist financing, international organized crime and fraud. The proposed rule change reflects regulatory concerns that criminals have used small cross-border transactions to go undetected.
FinCEN justified its request for a lower threshold by analyzing 2,000 reports of suspicious activity from 1.29 million underlying money transfers. The SARs were filed between 2016 and 2019 and are believed to be related to terrorist financing. More than 57% of those transfers were for less than $ 300.
In its letter, CIMA asked the Bankers Association to notify its members of the changes and to provide the regulator with a formal response to any concerns raised by members.
In the US, the American Bankers Association rejected the idea in a public consultation and asked the agencies to withdraw the proposal.
The association said FinCEN had failed to provide evidence that the lack of data from transactions that were not previously subject to the travel rule hampered law enforcement.
The ABA suggested that regulators should take more time to analyze the impact of the lower thresholds on law enforcement and financial institutions.
“Financial Institutions […] requires significant additional resources for quality control, updates to policies and procedures, training, audits, and compliance reviews. These increased burdens and costs can lead banks to eliminate or reduce international remittance services, ”the ABA wrote in its official response.
According to the travel rule, banks and money service providers must collect, internally store and transmit the name and address of the sender, the transferred amount, the execution date, the payment instructions as well as the name, address, financial institution, account number of the recipient and all specific data of the recipient Identifier.
The rule change would also affect VASPs (Virtual Asset Service Providers) as it specifically includes cryptocurrency transfers as a class of transactions to which the proposal would apply.
VASPs were made subject to the travel rule after the Financial Action Task Force, the global anti-money laundering standard-setter, changed its guidelines for crypto service providers and FinCEN issued its version of the regulation for VASPs in 2019.
It is forcing crypto services such as cryptocurrency exchanges and digital wallet providers to add an identity layer to a decentralized technology that was originally pseudonymized.
In practice, this is easier said than done, and adherence to the rule has been difficult and almost impossible for some. Some virtual asset services providers are working together in a US travel rules working group to develop a solution.
One of the problems is that in the virtual world it is difficult to determine that a “payment” is being made across borders.
Crypto compliance solutions provider CipherTrace estimates that the lower threshold would more than double the transactions covered by the travel rule and significantly increase the information that must be transmitted and retained by VASPs.
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