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WOCCU Hopes Comments Regarding AML/CFT Compliance Help to Reduce Regulatory Burdens
Thursday, March 27, 2014 6:40 AM

The World Council of Credit Unions (WOCCU) this week made recommendations to the Financial Action Task Force (FATF) on how to limit regulatory burdens on credit unions as part of the FATF's revisions to its guidance paper for banking institutions on the risk-based approach (RBA) to anti-money laundering and countering the financing of terrorism (AML/CFT) compliance. Other topics discussed at the FATF private sector participation group meeting included AML/CFT issues related to money services businesses (MSBs) and virtual currencies such as bitcoin. WOCCU Vice President and Chief Counsel Michael Edwards represented credit unions at the FATF meeting, which was held at the European Banking Federation's headquarters in Brussels, Belgium, March 25–26.

The FATF is working to update its current RBA for banking institutions guidance paper, issued in 2007, to be consistent with its updated International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, better known as the "40 Recommendations" for AML/CFT, released in February 2012. As part of this consultation, WOCCU filed a comment letter in January in response to a series of high-level questions posed by the FATF about the RBA, and made oral comments in response to the FATF's draft revision of the 2007 guidance at the Brussels meeting this week.

WOCCU’s comments focused on limiting regulatory burdens on small and medium financial institutions, as well as helping credit unions maintain access to correspondent banking services. It has become increasingly difficult for credit unions in jurisdictions, such as Great Britain and the U.S., to maintain access to correspondent banking services since the FATF's 2012 revisions to the 40 Recommendations because of the increased responsibility those changes placed on banks and credit unions for ensuring proper customer due diligence on their customer's customers.

For example, a bank or central credit union providing correspondent services to a credit union now can be held liable for shortcomings in the credit union's customer due diligence/member identification program. Similarly, a credit union doing business with an MSB can be held liable for problems with the MSB's AML/CFT compliance. Many larger banks have decided to "de-risk" their operations in the face of these new requirements by curtailing their business relationships with credit unions, smaller banks, trusts, MSBs and other businesses that handle funds on behalf of consumers or businesses.

Other topics discussed at the FATF consultative meeting included possible revisions to the FATF's guidance on MSBs issued in 2009, and possible future guidance on AML/CFT compliance regarding virtual currencies such as bitcoin.

Although a FATF guidance paper issued last summer touched upon the virtual currency AML/CFT issue and the United States' Financial Crimes Enforcement Network (FinCEN) issued guidance regarding virtual currencies in March 2013 and January 2014, many other jurisdictions, including most U.S. states, have not yet clarified how their AML/CFT and other regulatory requirements apply to virtual currency exchanges and administrators. Bitcoin exchanges in particular have been interested in doing business with credit unions in order to have access to wire and automated clearing house systems to settle sales of bitcoins with traditional currency, but the lack of regulatory certainty regarding AML/CFT compliance and licensure for virtual currency operators has made this difficult.

"Because they are membership-based organizations, credit unions tend to operate with less risky members and lines of business than other, for-profit financial institutions," said Brian Branch, WOCCU president and CEO. "We believe that our advocacy efforts regarding AML/CFT compliance will have a tangible and positive impact on credit union operations worldwide, both in terms of reducing regulatory burdens and in terms of helping all credit unions maintain access to correspondent banking services."