Department of the Treasury
Federal Reserve System
Federal Deposit Insurance Corporation
Re: Request for Burden Reduction Recommendations;
Money Laundering, Safety and Soundness, and
Securities Rules; Economic Growth and Regulatory Paperwork
Reduction Act of 1996 Review
Dear Madams and Sirs:
This letter is in response to the above Request made
in the February 3, 2005 Federal Register. I am the General
Counsel for The Sumitomo Trust & Banking Co., Ltd.,
New York Branch (“STB”), which is regulated
by the Federal Reserve System, and External General Counsel
of its subsidiary bank, Sumitomo Trust & Banking
Co. (U.S.A.) (“STBUSA”), which is regulated
by the Federal Deposit Insurance Corporation. Being subject
to the regulations and regulatory interpretations of
two separate federal bank regulatory agencies, I have
experienced first hand a number of issues related to
the regulatory agency interpretation and enforcement
of the Bank Secrecy Act and bank anti-money laundering
requirements, which include the following:
1. Regulatory
requirements are often unclear. The specific requirements
of the Bank Secrecy Act are not adequately stated—and
too often not stated at all—in the regulations
issued by the regulatory agencies. The regulations are
often vague or ambiguous, and lead to differing interpretations
by banks and regulatory agencies. One example of this
concerns exactly what standards banks should employ concerning “know
your customer” and customer account monitoring
requirements. The regulatory agencies have not offered
any meaningful regulatory standards in this regard.
In other instances, regulatory agencies have imposed
specific requirements that have no basis under either
pertinent statute or regulation. One example of this
is the requirement of the Federal Reserve Bank of New
York that U.S. branches of foreign banks implement compliance
testing functions, separate and apart from their internal
audit functions, as an element of their anti-money laundering
programs, even though there is no basis for such a function
by either statute or regulation.
2. A
lack of coordination exists among the regulatory agencies.
All too often the different federal regulatory agencies
impose differing and inconsistent requirements on the
banks they regulate. I am specifically familiar with
the requirements of the FRBNY and the FDIC, and the respective
standards they impose on STB and STBUSA are not consistent.
For instance, as mentioned above, the FRBNY requires
that STB have a compliance testing function. However,
in a recent FDIC examination of STBUSA, when I asked
the FDIC examiners whether the FDIC had a similar requirement,
they expressed ignorance as to what I was even talking
about.
3. The
regulatory agencies do not offer sufficient guidance
to the banking industry. Although the regulatory agencies
impose on banks numerous requirements relating to the
Bank Secrecy Act and anti-money laundering, they have
generally failed to offer specific regulatory guidance
as to how banks may satisfy these requirements. The one
notable exception to this lack of guidance concerns Customer
Identification Program requirements, which have been
discussed in at least two different written guidance
statements jointly issued by the federal regulatory agencies.
These guidance statements have been extremely helpful
to banks concerning what their customer identification
requirements are. Unfortunately, however, they are the
exception to the more typical lack of any guidance whatsoever.
4. The
regulatory agencies do not adequately train their examiners.
From my specific experiences, it is apparent that during
our periodic regulatory examinations, too many examiners
have not been adequately trained as to exactly what are
the regulatory requirements they are supposed to be examining.
This has resulted in inaccurate and unsupportable findings
and criticisms. For instance, during a recent FDIC examination,
STBUSA was criticized for having an inadequate customer
identification program. Yet the basis for the examiners’ criticisms
was directly and completely contradicted by the May 9,
2003 CIP Final Rule, specifically adopted by the FDIC.
When queried, the examiners did not even know that this
Final Rule had been issued.
5. Examiners
are given too much discretion in imposing their own requirements
on the banks they examine. The regulatory agencies have
not issued sufficiently clear and complete regulatory
requirements and have not adequately trained their examiners.
As a result, the examiners have too much discretion in
imposing their own specific requirements on the banks
they examine, even when those requirements have no regulatory
basis. And, in the absence of any specific regulatory
guidance to the contrary, banks are obligated to comply
with these requirements, irrespective of their costs,
reasonableness or rationale.
For these reasons, I urge the federal regulatory agencies
to adopt jointly written and agreed upon rules and standards
for all aspects of bank anti-money laundering programs,
which clearly and completely spell out exactly what the
regulatory agencies’ expectations, and also to
provide adequate training to their examiners in their
enforcement of these standards.
Thank you for your consideration.
Very truly yours,
Bruce A. Ortwine
Joint General Manager and General Counsel
The Sumitomo Trust & Banking Co., Ltd.,
New York Branch
Director and External General Counsel
Sumitomo Trust & Banking Co. (U.S.A.)
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