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FinCen Proposes New Electronic Format and Data Field Amendments for Unified Currency Transaction Reports in the US

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In keeping with its work to move from paper-based to electronic reporting formats, the Financial Crimes Enforcement Network (FinCen) has published a list of proposed new data fields to be added to firms’ currency transaction reports, as required under the US Bank Secrecy Act (BSA). Industry participants have until 28 March to provide feedback on the list of proposed data fields to be added to the reports, which are aimed at allowing the regulator to more easily monitor customer data for anti-money laundering (AML) purposes.

The proposals do not constitute a change in regulatory requirements, merely a change in the submission formats for currency transaction reporting. FinCen is therefore seeking input from the 82,255 market participants that will be impacted by the changes on the technical details of report submission, as it transitions from a system originally designed for collecting paper forms to a modernised IT environment for electronic reporting. Those affected include depository institutions, broker-dealers, future commission merchants, introducing brokers in commodities, money services businesses and mutual funds.

The impact on these financial institutions of moving to an electronic reporting format is twofold: there is the immediate cost of putting in place systems to be able to produce these reports electronically; and there is the longer term impact of facing greater scrutiny of individual data items, as the regulator uses the BSA database to improve its oversight capabilities. The initial investment in an electronic reporting system, or the alteration of a current system to meet these requirements, must also take into account possible future data related requirements and therefore must be fairly flexible to adapt to these requirements.

In terms of technical requirements as proposed by FinCen: “The database will accept XML-based dynamic, state of the art, reports. Batch and computer to computer filing processes will remain unchanged although the file format will change to match the database. Discrete filings will be based on Adobe LiveCycle Designer ES dynamic forms.”

FinCen estimates that the reporting burden will be an average of 20 minutes per report and 20 minutes recordkeeping per filing. In an average year, the regulator estimates that 14,111,600 responses will be filed and this will work out as 9,407,733 hours of form filling per year.

To illustrate the regulator’s current process of oversight, FinCen, along with the Securities and Exchange Commission (SEC), fined Pinnacle Capital Markets back in September last year for failing to comply with the Bank Secrecy Act. The investigation found that, from October 2003 to August 2006, Pinnacle failed to verify the identities of 34 out of a sample of 55 of its corporate accounts and from October 2003 through November 2009 it did not collect or verify identifying information for “the vast majority” of its sub-accounts.

The move to an electronic reporting format should help the regulator to more closely monitor this data; therefore one can expect an increase in the number actions taken against financial institutions found to be non-compliant.

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