May 4, 2005
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 statedand
too often not stated at allin 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.)