On September 8, the Office of the Comptroller of the Currency (“OCC”) published an extension of its notice and request for comment (the “Notice”) in the Federal Register regarding changes to the OCC’s Money Laundering Risk System (the “MLR System”) The Notice indicates that the OCC is inviting greater scrutiny of customers and transactions involving cryptocurrency, cannabis, and (fiat) currency.
The MLR System is a data collection process, whereby the OCC gathers and analyzes data on an annual basis from the community banks it supervises. This annual survey, known as the Risk Summary Form (“RSF”), gathers information for the MLR System on four major data points of community banks: products, services, customers, and geographies (collectively known as “PSCs”).
This year, the OCC is making changes to the MLR System by adding new categories of PSCs and deleting certain existing categories. Six new PSCs will be added: cash transactions, marijuana-related businesses, ATM operators, and three types of crypto assets – custody, stablecoin issuance, and stablecoin payments. Further, two new customer types will be added under the “money transmitter” category: administrators/exchangers of virtual currency and crypto ATM operators. Finally, the following four categories will be removed from the existing PSCs: boat/airplane, bulk cash/currency repatriation customers, bulk cash/currency repatriation, and international branches. The full and lengthy list of PSC categories, including the changes proposed by the Notice, can be found here.
The additions are aimed at enhancing the OCC’s data collection process to more accurately reflect the risks posed to community banks—and the emphasis on marijuana and crypto-related transactions aligns with trends in the market as well as the enforcement priorities of many governmental agencies. These changes show how the OCC—an agency that has been apprehensive to make sweeping changes in light of new technologies—is preparing to invest in a system that will put cannabis and crypto-related risks front and center.
Only one of the newly added categories—cash transactions—is not directly connected to marijuana or crypto. By removing the more targeted “bulk cash/currency repatriation customers” and “bulk cash/currency repatriation” categories, and replacing them with the more general “cash transaction” category, it appears that the OCC is intending to broaden the scrutiny associated with cash transactions. It is possible that a broader category will facilitate data reporting by the community banks, since the RSF is fully automated and contains fixed categories that cannot be altered based on nuanced circumstances.
The OCC touts its MLR System as a critical tool to identify areas of risk within its covered institutions and respond accordingly by allocating the proper resources to high risk areas. According to the OCC, “[b]anks will benefit from the reporting of MLR System data as it will assist in the managing of the bank’s BSA/AML programs and provide a starting point for banks to develop their risk assessments.” The OCC further believes that gathering annual data allows it the flexibility to shift examination priorities based upon the ever-changing money laundering schemes facing community banks. According to the Notice, the OCC estimates that the annual burden for reporting MLR System data will be 7,760 hours, across 970 respondents.
However, not everyone agrees with the OCC’s view that these changes to the MLR System are worth the burden. It is worth noting that the OCC originally posted this notice and request for comment back in June. In response, the OCC received only three comments from the public—one of which was a critical response from a banking organization. The banking association primarily criticized the OCC for underestimating the time and resources required to adhere to the proposed changes to the MLR System. According to the Notice, which cited the critical response, the banking association also asserted that the additional PSCs would “unnecessarily complicate the data collection process, require significant staff retraining, and potentially result in mis-categorizations of the PSCs.”
For the next few weeks, the OCC will accept comments regarding the MLR System and its data collection process generally, including: the accuracy of the OCC’s estimate of the burden of collecting information, ways to enhance the quality and clarity of the information to be collected, ways to minimize the burden of the collection on respondents, estimates of costs to purchase services that facilitate providing the information, and (perhaps most importantly) whether the collection of information is necessary for the proper performance of the functions of the OCC.