Compliance Blog

Written by Bernadette Clair, Regulatory Compliance Counsel

FinCEN and the Fed recently issued a proposed rule to amend the definitions of "funds transfer" and "transmittal of funds" under Bank Secrecy Act (BSA) implementing regulations. These changes have been proposed in response to Dodd-Frank’s amendments to the Electronic Fund Transfer Act (EFTA), creating new protections for remittance transfers.  Essentially, these changes are intended to maintain the current scope of transactions covered by the BSA recordkeeping and travel rules – including international wire transfers and cash-based transmittals of funds sent through money transmitters.

Why are these changes necessary?  Currently, BSA regulations exclude certain types of transactions and payment systems that are used mostly for domestic retail transactions and payments from the definitions of funds transfer and transmittal of funds.  But instead of listing the individual types of transactions that are excluded, the regulations refer to transactions covered by the EFTA, and the specific payment systems through which such transactions are covered (such as ATM, point-of-sale, and automated clearing house).

With Dodd-Frank’s amendments to the EFTA, and the implementation of the Regulation E rule on remittance transfers, some consumer transactions that were previously not covered under EFTA, such as international wires, will fall under the EFTA.  Without an amendment to the definitions of “funds transfer” and “transmittal of funds” in the BSA regulations, these transactions would soon fall outside the scope of the BSA recordkeeping and travel rule requirements.

From the proposed rule:

“The recent amendments to the EFTA and the recently finalized revisions to Regulation E, which are effective February 7, 2013, will result in an expanded scope of the transactions subject to the EFTA's remittance provisions. Some of these transactions have, to date, been covered by the regulations implementing the BSA. When the changes to Regulation E become effective, these transactions—which include international funds transfers sent by consumers through banks, and cash-based or account-based transmittals of funds sent by consumers through money transmitters—will fall outside the BSA rules' definitions of “funds transfer” and “transmittal of funds” (31 CFR 1010.100(w) and 1010.100(ddd)). To avoid this result, the Board and FinCEN are proposing to amend the definitions of funds transfer and transmittal of funds under the regulations implementing the BSA to limit the exclusion of EFTA-covered transactions from the recordkeeping and travel rules.”

(Keep in mind that the CFPB plans  to issue a proposed rule that would include an extension of the February 7, 2013 compliance date to sometime in the spring of 2013.  See our November 27th blog for more on this issue.)

For more details, see the proposed rule.  The deadline for submitting comments is January 25, 2013.