On May 26, 2020, the Financial Crimes Enforcement Network (FinCEN) published a notice to renew the Office of Management and Budget (OMB) control numbers assigned to Suspicious Activity Reporting (SAR) requirements. Although no changes to the requirements themselves are proposed, FinCEN notice in the Federal Register proposes to revise its estimate of the burden to financial institutions to produce SARs. FinCEN seeks comment from industry on its new “SAR burden” calculations on or before July 27, 2020.
Currently, FinCEN estimates industry’s “SAR burden” by considering the operational burden and cost associated with one stage of the SAR process: filing SARs; and retaining the supporting documentation associated with filed SARs. In the notice, FinCEN proposes to expand the scope and methodology it uses to determine the costs and burden by considering the costs associated with two other stages of the SAR process: (i) determining whether alerts that are escalated for further review merit filing a SAR; and (ii) documenting the decision not to file a SAR when a case does not merit it. These new burden calculations also take into account how many cases of suspicious activity a financial institution must review in order to produce a certain number of SARs annually. Though the notice expands the scope of the review, FinCEN specifically declined to consider the burdens associated with three other stages it has identified in the SAR process: (i) managing a transaction monitoring system; (ii) reviewing alerts; and (iii) transforming alerts into cases for review. FinCEN explains that it lacks sufficient information to take these stages into account in its burden calculation, and that it plans to address these costs in a future notice.
FinCEN also proposes to adjust its methodology for determining burden and cost estimates by departing from its past practice of allocating a single burden and cost to the “completion, submission, and storage of any type of SAR.” Instead, FinCEN proposes to estimate the burden and cost of “different categories of SARs, grouped by the SARs’ estimated degree of complexity”. This would be accomplished by grouping different categories of SARs according to certain key features such as the number of subjects in a SAR, the length of SAR narratives, and the presence of attachments, and assigning individual burden and cost estimates to each category.
The notice also provides insightful statistics on who is filing SARs, noting that 10 individual filers accounted for nearly half of all 2019 SARs, that slightly more than half of all such SARs were from banks, and that 2 percent of the filing population filed 81 percent of all such SARs.
Particular Areas for Industry Comment
FinCEN seeks comments in particular on the following issues:
- Other factors that may affect the burden and cost of filing a SAR, noting that the identification of factors that FinCEN can quantify through its BSA database or through publicly available statistical information would be helpful;
- FinCEN’s characterization of the three stages of SAR production it proposes to assess costs for (e.,the review of cases to determine whether a SAR should be filed, documentation of decisions not to file a SAR, and the actual filing of a SAR and storage of supporting documentation), the conversion rate utilized, and other research on different conversation rates for different types of financial institutions;
- The calculation of labor costs;
- FinCEN’s estimated hours burden calculated by the number of minutes that each stage of the SAR process entails;
- FinCEN’s proposed SAR categorization for the purpose of analyzing a SAR’s complexity; and
- Other assumptions FinCEN made to calculate the burden associated with filing different categories of SARs.
Significance of Proposed Changes
Industry may welcome FinCEN’s updated SAR burden estimates. That said, without inclusion of the first three steps of the SAR lifecycle – maintaining a monitoring system, reviewing alerts issued by the monitoring system, and converting those alerts into cases for further review – the calculation of the costs and burdens doesn’t take into account what many might believe to be the more burdensome and costly stages of the process. The exclusion of those stages, key to operating an anti-money laundering compliance program that affords an effective SAR process, might necessarily mean that any projected industry cost is underestimated.
Accordingly, industry input could not only influence the final SAR burden estimates, but might also help inform FinCEN of the actual costs and burdens of operating an effective AML program. This industry feedback might also affect the expectations of FinCEN and other regulators with respect to AML programs.