FinCEN Requests Feedback on No-Action Letter Process

Advisory

On June 3, 2022, the Financial Crimes Enforcement Network (FinCEN) issued an advance notice of proposed rulemaking¹ (ANPRM) seeking feedback on whether and how FinCEN should implement a no-action letter process. A no-action letter process, which FinCEN was required to consider under the Anti-Money Laundering Act of 2020 (the AML Act), would provide another mechanism for industry participants to seek feedback from FinCEN on whether certain products, services, or actions would violate the federal anti-money laundering laws and regulations. Comments are due by August 8, 2022.

Background

A no-action letter is a tool of enforcement discretion by which an agency will issue a letter to a regulated entity indicating that the agency does not intend to take or recommend enforcement action against the regulated entity for conduct described by the entity in a written request to the agency.² No-action letters allow regulated entities to obtain pre-clearance from an agency to engage in certain activities without fear of an enforcement action later on. Currently, three federal financial services agencies issue no action letters: the CFTC, the SEC and the CFPB.³

Under Section 6305(a) of the AML Act,⁴ FinCEN, in connection with the federal banking agencies and other government stakeholders, was required to (1) conduct an assessment of whether it should establish a no-action letter process and (2) report the results of that assessment to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services. On June 28, 2021, FinCEN issued that report⁵ to Congress and concluded that it should engage in a rulemaking to establish a no-action letter process.⁶ Now, almost a year after issuing that report, FinCEN has initiated that rulemaking.

Request for Comment

FinCEN is now formally soliciting input on a potential no-action rule. Notably, FinCEN has not yet offered a proposed model for how a no-action letter process would work, but is instead soliciting feedback on 48 specific questions.

Topics covered by the questions in the NPRM include:

Whether there are any issues with a no-action letter process that FinCEN did not consider in its report to Congress;⁷
Whether there is any value in FinCEN issuing a no-action letter if FinCEN can’t bind other agencies with enforcement jurisdiction over the same conduct;⁸
Whether, and to what extent, FinCEN should work with other agencies in issuing its no-action letters;⁹
Whether FinCEN should limit the factual scope or timing of its no-action letters;¹⁰
Whether FinCEN should determine that it has jurisdiction over an entity before issuing a no-action letter;¹¹
Under what circumstances a no-action letter should lose its effect or be revoked;¹²
Whether there should be an appeals process for cases in which FinCEN declines to issue a no-action letter;¹³
Whether no-action letters, and/or denials of no-action letters, should be made public;¹⁴ and
How a no-action letter should be distinguished from FinCEN’s two current forms of regulatory guidance or relief: administrative rulings and exceptive or exemptive relief.¹⁵

Takeaway

As with many rulemaking initiatives under the AML Act reform, FinCEN’s ANPRM is a long-awaited opportunity for the industry to influence AML policy. Currently, FinCEN offers only administrative rulings and exceptive or exemptive relief as mechanisms for obtaining regulatory guidance or forbearance, both of which are of limited utility to the industry and are often not made public. A no-action letter process, by contrast, could provide more certainty to the industry on FinCEN’s position with respect to prospective activities and could be especially useful to the broader industry at a time when technology and innovation often do not fit squarely within decades-old laws and regulations.

Parties interested in providing feedback on FinCEN’s questions should submit their comment letters no later than August 8, 2022.

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Financial institutions with questions about the ANPRM or other aspects of the AML reform can reach out to the authors or any of their colleagues in Arnold & Porter’s Financial Services group.

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

No-Action Letter Process, 87 Fed. Reg. 34224 (proposed June 6, 2022) {hereinafter “ANPRM”}.
ANPRM at 34225.
ANPRM at 34225, n.21.
The AML Act was enacted on January 1, 2021 as part of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021. The current proposed rule is one of many required by Congress under the new law. For a longer discussion of the changes made by the AML Act, see Arnold & Porter, BSA/AML Reform Under the NDAA (Jan. 5, 2021).
FinCEN, A Report to Congress: Assessment of No Action Letters in Accordance with Section 6305 of the Anti-Money Laundering Act of 2020 (June 28, 2021).
ANPRM at 34224.
See Questions 1, 4-5, NPRM at 34226. In its report, FinCEN considered (1) whether a cross-regulator no-action letter process was feasible and (2) the effect a no-action letter process would have on illicit finance risks. NPRM at 34226.
See Questions 2-3, 6, NPRM at 34226.
See Questions 2, 11, 38-41, NPRM at 34226-34227.
See Questions 9-10, NPRM at 34226.
See Questions 18-19, NPRM at 34227.
See Questions 21-22, 24-28, NPRM at 34227.
See Questions 29, NPRM at 34227.
See Questions 30, 34, 37, NPRM at 34227.
See Questions 45-46, NRPM at 34228. In an administrative ruling, FinCEN rules on whether a regulated entity’s past actions violated Chapter X of the Code of Federal Regulations (i.e., FinCEN’s regulations implementing the Bank Secrecy Act). Exceptive or exemptive relief is when FinCEN gives public notice that certain persons or transactions or classes of persons or transactions are not subject to the requirements of Chapter X. ANPRM at 34225.