New York banking rule puts boards on the hook to fight illicit financing

By Elizabeth Dilts

NEW YORK (Reuters) – New York’s banking regulator issued new rules on Thursday requiring that banks operating in the state must pass annual resolutions at the boardroom level or have a senior officer verify that internal anti-money laundering and anti-terrorist finance programs meet federal standards.

The regulation, which goes into effect Jan. 1, stem from compliance shortcomings uncovered by the New York Department of Financial Services and come at a time of ramped up regulation in the U.S. to cut off financing to Islamic State.

“It is time to close the compliance gaps in our financial regulatory framework to shut down money laundering operations and eliminate potential channels that can be exploited by global terrorist networks and other criminal enterprises,” New York Financial Services Superintendent Maria T. Vullo said in a statement.

Banks are already required to track and report suspicious transactions under the Bank Secrecy Act and to halt any transactions with sanctioned entities.

New York’s rule, proposed last December, echoes a call from the banking and compliance industry that bank executives at the highest levels of leadership need to be directly involved in ensuring their financial institutions are compliant.

“The board says, ‘We have put in processes to keep us compliant and as far as we know, we are,'” said Rob Rowe, vice president with the American Bankers’ Association.

A prior version of the rule would have required senior compliance officers to certify that the bank was 100 percent compliant, a standard Rowe called unrealistic and that was cut form the final rule.

Among the requirement, banks’ will have to make sure their systems keep up-to-date watch lists of organizations and invidiously that land on the U.S. Treasury’s sanctions list, and make sure their technology effectively prevents doing business with sanctioned entities.

(Reporting By Elizabeth Dilts; Editing by Bernard Orr)