FDIC Federal Register Citations

[Federal Register: March 29, 1999 (Volume 64, Number 59)]

[Proposed Rules]

[Page 14845]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr29mr99-20]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 326

RIN 3064-AC19

Minimum Security Devices and Procedures and Bank Secrecy Act

Compliance

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Withdrawal of notice of Proposed Rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) published a

Notice of Proposed Rulemaking in the Federal Register on December 7,

1998. The proposed regulation would have required state nonmember banks

to develop and maintain ``Know Your Customer'' programs. The FDIC

received 254,394 comments from the public during the comment period.

The overwhelming majority of the commenters were strongly opposed to

the adoption of the proposed regulation. After considering the issues

raised by the comments, and in view of the strong opposition to the

proposed regulation, the FDIC is withdrawing the Notice of Proposed

Rulemaking.

DATES: Proposed subpart C to part 326 is withdrawn on March 29, 1999.

FOR FURTHER INFORMATION CONTACT: Carol A. Mesheske, Chief, Special

Activities Section, Division of Supervision (202) 898-6750, or Karen L.

Main, Counsel, Legal Division (202) 898-8838.

SUPPLEMENTARY INFORMATION:

I. Background

On December 7, 1998, the FDIC published a proposed amendment to

Part 326 of the FDIC's Rules and Regulations, ``Minimum Security

Devices and Procedures and Bank Secrecy Act Compliance'' (63 FR 67529,

Dec. 7, 1998). The proposed amendment was intended to provide guidance

to state nonmember banks to facilitate and ensure their compliance with

existing federal reporting and recordkeeping requirements, such as

those found in the Bank Secrecy Act. It was intended to help protect

the integrity and reputation of the financial services industry and

assist the government in its efforts to combat money laundering and

other illegal activities that might be occurring through financial

institutions.

The proposed amendment required each state nonmember bank to

develop a program to determine the identity of its customers; determine

its customers' sources of funds; determine the normal and expected

transactions of its customers; monitor account activity for

transactions that are inconsistent with those normal and expected

transactions; and report any transactions of its customers that are

determined to be suspicious, in accordance with the FDIC's existing

suspicious activity reporting regulations.

The FDIC's proposal was substantially the same as the regulations

proposed by the Board of Governors of the Federal Reserve System, the

Office of the Comptroller of the Currency, and the Office of Thrift

Supervision in December 1998. The FDIC issued the proposed amendment

pursuant to its authority under section 8(s)(1) of the Federal Deposit

Insurance Act (FDI Act) (12 USC 1818(s)(1)), as amended by section

2596(a)(2) of the Crime Control Act of 1990 (Pub. L. 101-647), which

requires the FDIC to issue regulations directing banks under its

supervision to establish and maintain internal procedures reasonably

designed to ensure and monitor compliance with the Bank Secrecy Act.

The FDIC also relied on its general rulemaking authority under section

9(a) of the FDI Act (12 USC 1819(a)).

II. Comments Received

During the comment period, the FDIC received 254,394 comments from

the public. Comments were received from community banks, multinational

or large regional banks, members of Congress, trade and industry

research groups, and regulatory bodies, as well as the general public.

Only 105 commenters were in favor of the proposed regulation.

The overwhelming majority of commenters were individual, private

citizens who voiced very strong opposition to the proposal as an

invasion of personal privacy. Other issues raised by these commenters

included that the FDIC lacked the authority to issue the proposal; the

cost of any Know Your Customer program would be passed on to customers;

and the regulation would be ineffective in preventing money laundering

and other illicit financial activities.

Banks, bank holding companies and other banking trade groups that

commented on the proposal uniformly opposed the proposed amendment.

Their concerns included the following: (1) the regulation would be very

costly to implement, especially for small banks; (2) the Know Your

Customer program would invade customer privacy; (3) commercial banks

would be unfairly disadvantaged and lose customers if all segments of

the financial services industry are not covered; (4) compliance with

the regulation would divert resources from Y2K preparation; (5) the

FDIC lacks authority to adopt the regulation; (6) public confidence in

the banking industry would be harmed by the regulation; and (7) the

regulation is both unnecessary and redundant, as banks are already

familiar with their customers and have adequate procedures in place.

III. Paperwork Reduction Act

The FDIC submitted a collection of information associated with the

Know Your Customer proposed rulemaking to the Office of Management and

Budget for review. That request for review is withdrawn.

IV. Board Decision

The FDIC has carefully reviewed every comment received during the

90-day comment period. Based upon that review, and in light of the

overwhelming objections raised by the public, the FDIC's Board of

Directors has decided to withdraw the proposed regulation.

By Order of the Board of Directors.

Dated at Washington, D.C. this 23rd day of March, 1999.

Federal Deposit Insurance Corporation

Robert E. Feldman,

Executive Secretary.

[FR Doc. 99-7583 Filed 3-26-99; 8:45 am]

BILLING CODE 6714-01-P