Worldwide Implications of New York AML Regulations


The New York Department of Financial Services (NYDFS) released new Anti-Money Laundering (AML) requirements effective April 15, 2017. These aim to close gaps in the battle against money laundering through drug trafficking, human trafficking, terrorism, and similar illicit activities. While the NYDFS is tasked with overseeing the regulations of different types of institutions in New York state, the new regulation is centered on those that must abide by Bank Secrecy Act (BSA)/AML requirements, namely financial institutions, such as banks, trust companies, foreign bank branches, credit unions, investment companies, and insurance companies.

On the surface, one regulatory body that oversees one state would seemingly have little influence on a global scale. Look a little deeper and you’ll find that New York City is not only the financial capital of the United States but also 90% of foreign-exchange transactions and 80% of trade finance transactions (which often involve global parties and cross-border currency exchange) involve the US dollar and flow through financial institutions in New York.[1]

All parties involved in foreign-exchange and trade finance transactions – which accounts for nearly half of money exchanged daily on a global basis – must abide by OFAC regulations, according to the BSA. Foreign-exchange and trade finance transactions have been consistently made in US dollars since 1989 due to the global trust in the Federal Reserve which backs the US dollar.[2] The trend is not expected to buck any time soon, as other threats to the US dollar have subsided. A few examples: the Euro nearly dissolved a few years ago and Brexit has fueled further uncertainty; the barriers to free exchange of the Chinese yuan limits its widespread usage; and digital currencies like Bitcoin are volatile and not seen as trustworthy by the general public.

The US dollar and New York remain at the center of foreign-exchange and trade finance transactions. As a result, the new AML regulations by the NYDFS will likely resonate throughout the world.

Below is a synopsis of new NYDFS requirements:

  • All clients under the supervision of the New York Department of Financial Services (NYDFS) will be required to have a ‘Transaction Monitoring Program’ in place. While this is not inherently new, the new additional requirement is to review the program periodically and demonstrate their risk profile matches in their Transaction Monitoring Program.
  • Qualified personnel or outside consultants will be responsible for design, planning, implementation, operation, testing, validation, and on-going analysis of AML solutions. They will also need to perform periodic training.
  • Institutions will now be responsible for demonstrating a proper vendor selection program. Along with this, the institutions will also be responsible for validating the integrity, accuracy, and quality of the data to ensure accurate and complete data flows through their solutions.
  • Lastly, all members of the Board of Directors and Senior Officers will need to sign the Certification provided by NYDFS.

The NYDFS has created these regulations to fill some of the glaring gaps in the battle against terrorist financing and money laundering. If the US dollar continues to remain dominant, regulations made by the NYDFS and the US Treasury will continue to have worldwide effects—these regulations are crucial in the battle against money laundering.

[1] Onaran, Yalman. “Dollar Dominance Intact as U.S. Fines on Banks Raise Ire.” Bloomberg. 16 July 2014. http://www.bloomberg.com/news/articles/2014-07-15/dollar-dominance-intact-as-u-s-fines-on-banks-raise-ire Web. 13 July 2016.

[2] Ibid

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