FinCEN eyes no-action letters as aid for FinTech rollouts

FinCEN was ordered to assess and report on the viability of creating a no-action letter process by the Anti-Money Laundering Act of 2020, which was approved as part of this year’s defense spending bill.

“FinCEN concludes that a no-action letter process would be a useful complement to its current forms of regulatory guidance and relief,” said Acting Director Michael Mosier in a June 30 statement. “FinCEN looks forward to continuing to engage with our government partners and the public during a future rulemaking process to ensure all constructive feedback is considered on this important issue.”

Currently, the agency offers two ways for financial institutions to request interpretation of conduct as it relates to enforcement of the Bank Secrecy Act (BSA): administrative rulings and exceptive or exemptive relief.

Administrative rulings are the most formal process and are binding to FinCEN and the party involved. If made public, they can be used to set precedent for other covered entities. FinCEN can also grant exceptive or exemptive relief to BSA requirements, which applies only to a specific set of circumstances. The relief can be revoked by FinCEN’s director if other information about the circumstances comes to light at a later date.

In no-action letters, FinCEN would determine not to take enforcement action against a submitting party for a specific action or request. In a June 28 report to Congress, the agency said it would most commonly use no-action letters in situations where a covered entity is considering a new product or service that could potentially violate the BSA but has not yet engaged in the activity.

Several federal regulators, including the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Consumer Financial Protection Bureau (CFPB), have no-action letter processes. Both the SEC and CFTC said they issue a handful of no-action letters a year and that the response time can range from a few months to more than a year.

In its report to Congress, FinCEN said the main benefits of establishing a no-action letter process would be to open a dialogue between the regulator and regulated entities, encourage innovation among financial institutions, and enhance the culture of compliance and transparency in the enforcement of the BSA.

“For example, financial institutions looking to innovate may be reluctant to embrace new business models and engage with FinCEN on these issues if they lack sufficient certainty about how FinCEN would apply the law to novel or unique scenarios,” the report said. “Changes in current processes, to include the implementation of a new, well-resourced no-action letter option, could encourage parties to engage with FinCEN, and thus may improve this dialogue.”

The agency did recognize several significant obstacles to establishing a no-action letter process, the largest of which was a lack of funding. If the process was implemented, FinCEN would need to hire more employees to handle no-action letter requests. FinCEN already struggles to respond to requests for administrative rulings and exceptive or exemptive relief, it said in its report to Congress.

FinCEN also noted the decisions made in no-action letters would not be applicable to other federal agencies, although they would be consulted. Other agencies could still launch an enforcement action against a covered entity, even if FinCEN issued that entity a no-action letter.

FinCEN did not set a date or timeline for when it would launch its rulemaking process on the matter.