[Federal Register: March 29, 1999 (Volume 64, Number 59)]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 326
Minimum Security Devices and Procedures and Bank Secrecy Act
AGENCY: Federal Deposit Insurance Corporation.
ACTION: Withdrawal of notice of Proposed Rulemaking.
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
DATES: Proposed subpart C to part 326 is withdrawn on March 29, 1999.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.
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
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,
[FR Doc. 99-7583 Filed 3-26-99; 8:45 am]
BILLING CODE 6714-01-P