Defining Mutual Funds as Financial Institutions; Extension of BSA Compliance

Updated: November 03, 2010

The final rule extends the compliance date for those provisions in 31 CFR 103.33 that apply to mutual funds. The rule, which now includes mutual funds within the general definition of "financial institution" under the BSA, requires the filing of Currency Transaction Reports (CTRs) and the creation, retention and transmittal of records or information for transmittal of funds. Additionally, the final rule amends the definition of mutual fund in the rule requiring mutual funds to establish Anti-Money Laundering (AML) compliance programs. Lastly, the final rule amends the rule that delegates authority to examine institutions for compliance within the BSA. The amendment makes it clear that FinCEN has not delegated to the Internal Revenue Service the authority to examine mutual funds for compliance with the BSA, but rather to the U.S. Securities and Exchange Commission as the federal functional regulator of mutual funds.

Section 103.33 applies to the recordkeeping and travel rule and related recordkeeping requirements. The final rule subjects mutual funds to the creation and retention of records for transmittals of funds. In addition, it requires the transmission of transactional information to other financial institutions in the payment chain ("Recordkeeping and Travel Rule"). Parameters applicable to the Recordkeeping and Travel Rule include:

  • Amounts that equal or exceed $3,000.
  • Requirement of the transmittor's financial institution to obtain and retain name, address, and other information on the transmittor and the transaction.
  • Requirement of the recipient's financial institution, and in certain instances, the transmittor's financial institution, to obtain or retain identifying information on the recipient.
  • Requirement that certain information obtained or retained by the transmittor's financial institution "travel" with the transmittal order through the payment chain.

Risks of Non-Compliance

FinCEN will provide written feedback to the affected industry within 18 months of the effective date of a new regulation or change to an existing regulation and will focus on providing additional trend analyses as well as additional law enforcement case examples. When issues of non-compliance do arise, FinCEN will strive to better communicate how any penalties are correlated to the underlying violations, so as to avoid misimpressions about the nature of such conduct and provide a clear message to the industry about these actions.

FinCEN has retained the authority to pursue civil enforcement actions against financial institutions for non-compliance with the Bank Secrecy Act and the implementing regulations. Under the Bank Secrecy Act, FinCEN is empowered to assess civil monetary penalties against, or require corrective action by a financial institution committing negligent or willful violations of the Bank Secrecy Act. Generally, FinCEN identifies potential enforcement cases through: (1) referrals from the agencies examining for Bank Secrecy Act compliance; (2) self-disclosures by financial institutions; and, (3) FinCEN's own inquiry to the extent it becomes aware of possible violations

FinCEN has signed memoranda of understanding (MOUs) with eight Federal regulators and 47 State regulatory agencies to ensure that information about compliance issues is exchanged between FinCEN and the entities charged with examining for BSA compliance. As part of that exchange of information, examining authorities notify FinCEN of institutions with significant incidents of BSA noncompliance. In 2009, FinCEN processed 274 cases based on these notifications from regulators and institutions that self-reported incidents of non-compliance.

FinCEN works with appropriate regulatory and law enforcement agencies to administer enforcement actions in cases of egregious violation of BSA requirements. This year, FinCEN and the Office of the Comptroller of the Currency (OCC) assessed concurrent civil money penalties, each $5 million, against the New York Branch of a private, commercial international bank, for past violations of the BSA. In assessing the penalty, FinCEN determined that the branch failed to implement an adequate system of internal controls to ensure compliance with the BSA and manage the risk of money laundering or other suspicious activity, and failed to conduct independent testing to allow for the timely identification and correction of BSA compliance deficiencies. The branch, without admitting to or denying the allegations, consented to payment of the civil money penalties, to be satisfied by a single payment of $5 million to the U.S. Department of the Treasury.

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