FinCEN Ponders No-Action Letters

The chief anti-money laundering agency in the United States is asking for public comment on the idea of developing a no-action letter process, in case any of your AML compliance professionals want to voice your thoughts about this potential new avenue for regulatory guidance. 

No-action letters are already used by several other regulatory agencies, and they are just what the name implies: the agency writes a letter to a company, clarifying whether or not the agency would take no action on some question of law the company has raised. The Securities and Exchange Commission offers no-action letters for companies asking whether they can exclude certain shareholder resolutions from the proxy statement; and the Justice Department does something similar with its FCPA Opinion releases. 

Now FinCEN is developing its own no-action letter process, as required by the Anti-Money Laundering Act of 2020. The first step is to solicit public comment on its proposed rulemaking, and so FinCEN put out that call for comment on Friday.

To be clear, no specific proposal exists today; that comes next, after people submit comments and FinCEN reviews them. This first step is simply FinCEN asking, “What would you recommend we think about as we develop a proposed rule for no-action letters?”

The sectors that should care about this the most are those that handle lots of financial transactions: banks, insurance, money-service businesses, and mortgage companies, foremost; but also jewelry shops, casinos, real estate firms, and broker-dealers. Compliance officers at any of those businesses will want to keep this no-action idea on your radar screen, since eventually you could be writing a request for no-action on questionable conduct happening at your firm.

FinCEN flagged a bunch of those potential issues itself in its call for public comment, published in the Federal Register last week. First were several questions about how FinCEN no-action letters might co-exist with other regulators’ actions, such as: 

• What would the value of a FinCEN no-action letter be, if other regulators with jurisdiction over your financial firm don’t issue a similar no-action letter on the same issue? 
• To what extent could a firm rely on a FinCEN no-action letter if your firm is subject to oversight and examination for similar matters by another agency?
• What effects might FinCEN no-action letters have on regulatory oversight by state, local, or tribal authorities? 

FinCEN also raise questions about the subject matter and format of no-action letters, such as:

• Should FinCEN limit the scope of no-action letters so that requests can’t be submitted during a Bank Secrecy Act examination, including when the subject of the letter is already a matter under examination?
• Should FinCEN have the discretion to share the contents of your no-action letter request with other regulators, particularly if those regulators’ answers might guide FinCEN’s reply? (This one seems especially important, since lots of no-action letters will presumably be asking about whether a firm’s actions might qualify as misconduct.) 
• If FinCEN issues a no-action letter to a parent company, should that answer also apply to the firm’s subsidiaries, and vice-versa? (A question that seems quite relevant to financial firms with sprawling operations around the globe.) 
• Should FinCEN have an appeals process for no-action requests that are denied?

And some questions about the confidentiality of no-action letters:

• Should FinCEN maintain the confidentiality of no-action letters for a period of time, or indefinitely, after granting them? Under what circumstances should FinCEN maintain confidentiality?
• If no-action letters (and their underlying requests) are made public, how should FinCEN handle confidential issues, such as triggering mechanisms for suspicious activity report (SAR) reviews?
• Should the letters be used as published precedents? Under what circumstances should no-action letters be applicable beyond the requesting institutions?

You get the idea. In total, FinCEN asked more than 40 questions about how the letters process should work; the ones flagged above are just examples that strike me as particularly significant for individual firms and the compliance community overall. There’s quite a lot to consider here.

Taking Action on No-Action Letters

Put me in the camp that supports no-action letters in principle, despite the many administrative details that need to be smoothed out to make such letters work in practice. They can provide company-specific answers to delicate or novel situations, and lord knows compliance officers see plenty of those in your day-to-day work. Any vehicle that can provide more insight into regulators’ thinking is a good thing. (It’s certainly better than poring over every word of regulators’ speeches or enforcement actions, which is what the compliance commentariat does otherwise.)

That said, the issues that might cause a financial firm to seek guidance from FinCEN can be fraught with enforcement risk; hence FinCEN asks so many questions about how a no-action letter process would overlap with regulatory examinations and enforcement. A FinCEN no-action letter process could create all sorts of unintended consequences for compliance officers — so affected industries should watch the evolution of this process closely as it unfolds over the next year or so.

Interested parties can submit comments in one of two ways. 

First, you can visit the federal e-rulemaking portal at www.regulations.gov, and follow the instructions for submitting comments. Refer to Docket Number FINCEN-2022-0007 and RIN 1506-AB55. 

Or you can submit comments by mail (what is this, the ’70s?) at Financial Crimes Enforcement Network, Enforcement and Compliance Division, P.O. Box 39, Vienna, VA 22183. Again, use Docket Number FINCEN-2022-0007 and RIN 1506-AB55.

Comments are due by Aug. 5. Go get writing!