On December 6, 2010, the Financial Crimes Enforcement Network (FinCEN) proposed a requirement that non-bank residential mortgage lenders and originators, just like other types of financial institutions, establish anti-money laundering (AML) programs and comply with suspicious activity report (SAR) regulations. The requirements are provided in a Notice of Proposed Rulemaking.
The Bank Secrecy Act (BSA) authorizes the Treasury to issue regulations requiring financial institutions to keep records and file reports that the Secretary determines "have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism." The subject proposed rulemaking regarding residential mortgage lenders is derived from that authority.
At this time, the only mortgage originators that are required to file SARs are banks and insured depository institutions.
According to FinCEN, analyses of SARs in FinCEN's mortgage fraud reports show that non-bank mortgage lenders and originators initiated many of the mortgages that were associated with SAR filings.
The Notice of Proposed Rulemaking intends to provide prevention of mortgage fraud, including such activities as false statement, use of straw buyers, fraudulent flipping, and even identity theft associated with mortgage borrowing. These illegal activities, and others, have been identified in information provided by SARs.
This Notice of Proposed Rulemaking was informed by comments received following an Advanced Notice of Proposed Rulemaking (ANPRM) issued last year on July 21, 2009.
Comments: Due 30 days after publication in the Federal Register.
Lenders Compliance Group provides a robust and comprehensive risk assessment for auditing SARs. If you would like to prepare for the SARs filing requirements and/or provide independent testing and monitoring for compliance, please contact us.
(1) Policies and Procedures: incorporate policies, procedures, and internal controls based upon the loan or finance company's assessment of the money laundering and terrorist financing risks associated with its products and services.
Policies, procedures, and internal controls must:
(i) Include provisions for complying with the applicable requirements of Subchapter II of Chapter 53 of Title 31, United States Code ("Records and Reports on Monetary Instruments Transactions"),
(ii) Integrate the company's agents and brokers into its anti-money laundering program, and
(iii) Obtain all relevant customer-related information necessary for an effective anti-money laundering program.
(2) Compliance Officer: designate a compliance officer who will be responsible for ensuring that:
(i) The anti-money laundering program is implemented effectively, including monitoring compliance by the company's agents and brokers with their obligations under the program;
(ii) The anti-money laundering program is updated as necessary; and
(iii) Appropriate persons are educated and trained.
(3) Training: provide for on-going training of appropriate persons concerning their responsibilities under the program.
A loan or finance company may satisfy this requirement with respect to its employees, agents, and brokers by:
(i) Directly training such persons or
(ii) Verifying that such persons have received training by a competent third party with respect to the products and services offered by the loan or finance company.
(4) Independent Testing: provide for independent testing to monitor and maintain an adequate program, including:
(i) Testing to determine compliance of the company's agents and brokers with their obligations under the program.
(ii) Determining that the scope and frequency of the testing is commensurate with the risks posed by the company's products and services.
NOTE: Such testing may be conducted by a third party or by any officer or employee of the loan or finance company.
(5) Compliance: compliance is subject to examination by FinCEN or its delegates, under the terms of the Bank Secrecy Act. Failure to comply with the requirements may constitute a violation of the Bank Secrecy Act.
(6) Effective date: an anti-money laundering program that complies with the all requirements must be implemented on or before the later of six (6) months from the effective date of the regulation, or six (6) months after the date a loan or finance company is established and becomes subject to the requirements.
Visit Library for Issuances
FinCEN: Advance Notice of Proposed Rulemaking
Federal Register, Vol. 74, No. 138 (7/21/09)
LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.