U.S. Anti-Money Laundering Laws Are Outdated. Regulators Are Struggling With How to Modernize Them.

TD Bank’s $3 billion settlement over money-laundering failures has underscored the difficulty banks have in preventing financial crimes. Banking groups say regulators haven’t gone far enough with a proposal to reform the financial system’s safeguards.

By Dylan Tokar. Excerpts:

"financial institutions in the U.S. and Canada last year spent $61 billion on financial crimes compliance.

Meanwhile, critics of the current system question whether it is effective. Instead of spending their resources looking for the worst types of financial crime, financial institutions say they often are forced amid pressure by regulators to focus on the technical aspects of complying with their anti-money-laundering regulations.

During periodic examinations, regulators often take random samples of the cases investigated by a bank’s staff and may question, for example, why they filled out a suspicious activity report in a certain way, or, in some cases, didn’t file one at all.

The upshot of that regulatory scrutiny, financial crimes experts argue, is a check-the-box approach that leads to financial institutions filing millions of suspicious activity reports a year, many of which may have little value to law-enforcement officials. The FinCEN proposal does little to alleviate that kind of regulatory pressure, banking groups say.

Instead, FinCEN’s proposal formalizes a requirement for financial institutions to conduct an assessment that identifies the risks facing their organization. Commentators have pointed out the practice is already widespread in the industry. Making it a requirement—which regulators say will increase consistency across the industry—adds to banks’ regulatory burden since they will then be examined on how well they complete the assessment based on newly formulated standards, according to some industry groups."