Understanding the Impact of FinCEN's New Rules on Financial Institutions

Looking to improve the state of reporting of suspicious transactions, FinCEN proposed new AML/CFT rules on June 28th, 2024. The motive behind updating the rules is to implement standards for financial institutions that keep up with the prevalent digital trends.

The major impact of the proposed rules is on fintech companies and financial institutions like credit unions, banks, and more. 

Let’s take a look at how these rules could affect the various businesses and their operations.

Implications of FinCEN’s New AML/CFT Rules

These are the possible implications that the new AML/CFT rules could have on businesses:

Stricter KYC Processes

Since the focus of the proposed AML and CFT rules is to improve the state of reporting, fintech entities and financial institutions could be required to implement stricter KYC norms. This would help these players better verify the identities of their clientele.

More robust KYC processes could also lead to a reduction in the number of bad actors. Since the identities of any possible fraudulent individuals would be well verified and in the organization’s possession, the proposed rules could lead to the creation of a deterrent to money laundering activities.

Better Account Verification

Financial institutions like credit unions and banks are often faced with identity theft fraud where individuals use synthetic identities or steal the identities of real people to create accounts with fake credentials. These accounts are often linked with criminal activities.

Under the proposed CFT requirements, financial institutions might have to install more stringent account verification methods in order to ensure the validity of submitted documents and verify the identity of account holders.

Better Integration of Biometric Verification

Banks and many fintech platforms have already adopted biometric verification into their operations. However, the proposed AML and CFT rules might nudge other financial institutions in a direction where biometric verification and authentication become a part of their processes as well.

The logic behind this move is along the same lines as the possible development in the KYC processes. Integrating physiological markers specific to each customer/client would not only add to their security but also help with maintaining better surveillance of any suspicious entities.

An Opportunity in Disguise

While these proposed rules might seem like they are an extra piece of chore that existing and new fintech entities and financial institutions need to perform, they present these businesses with an opportunity. The opportunity is to stay ahead of the security curve and set new standards for the industry.

By implementing the requirements of these proposed rules, organizations can fulfill their regulatory obligations, as well as improve their customer relationships by presenting a more robust and secure environment for them to exist in.

Integrating these security standards into your organization or business is a breeze too, thanks to Signzy’s easy-to-integrate APIs. We ensure a positive consumer experience while maintaining top-of-the-line security too. So you can rest assured that stricter regulations won’t lead to any client drop-offs.

Conclusion

The proposed AML and CFT rules help all financial institutions maintain a more secure environment for their clients, improve their reporting standards, and install better verification and authentication measures. The proposed rules also lead to mitigation of the financial institutions’ liabilities in the unfortunate event of any fraudulent activity, as stricter policies would lead to easier tracking and capture of any bad actors.