Over the last few months, each of the federal regulators (FDIC, NCUA, OCC, and Federal Reserve) have issued proposals that would permit an exemption from the SAR reporting requirements. Upon first glance, it may appear to some that SARs are no longer required by financial institutions.
This, however, is not the case.
It is important to understand that SAR regulations are technically required by both FinCEN as well as a bank’s primary regulator. Neither of these rules (regulator rules nor FinCEN rules) contain specific provisions permitting exemptions from SAR reporting. That said, FinCEN has general authority to grant exemptions from the requirements of the BSA, which includes granting exemptions under its SAR reporting regulations. Specifically, FinCEN’s regulation provides that “[t]he Secretary [of the Treasury], in his sole discretion, may by written order or authorization make exceptions to or grant exemptions from the requirements of [the BSA]. Such exceptions or exemptions may be conditional or unconditional, may apply to particular persons or to classes of persons, and may apply to transactions or classes of transactions.” In application, the Treasury Secretary has delegated this exemption authority to FinCEN, but the problem is this - no such authority currently exists for any of the federal regulators, therefore making SAR relief somewhat impossible for regulated institutions, regardless of FinCEN’s authority.
The FDIC’s version of the proposal explains it this way: "Because the FDIC’s SAR regulations do not currently contain any provision by which the FDIC can issue case-by-case exemptions, a situation could arise in which FinCEN grants an exemption from the SAR filing requirements to an FDIC-supervised institution, but the institution would still need to file a SAR if the circumstance fell within the FDIC’s SAR rule."
The result is that this new rule will give the FDIC (or other regulator — as they each have their own version of this) the ability to grant exemptions from their SAR rules. This will then allow a financial institution to be granted an exemption from either 1) both FinCEN and their regulator or 2) just their regulator (though in this case, they would still have to comply with FinCEN's rules).
As the primary regulator (i.e. FDIC) SAR regulations have some requirements that go above and beyond the FinCEN SAR requirements, this new exemptive authority will potentially allow a regulated institution relief from their primary regulator's SAR rules in some areas without needing to also gain an exemption from FinCEN. For example, primary regulator rules that are more restrictive than FinCEN’s SAR rules include 1) the requirement to promptly notify the board of directors that a SAR has been filed as well as 2) a requirement to report in broader circumstances, such as reporting insider abuse at any dollar amount. For exemption requests from the requirements of a primary regulator's SAR regulations that would also require an exemption from FinCEN’s SAR regulation, for example, exemption requests related to SAR filings, or related to SAR timing requirements, or related to SAR confidentiality, regulated institutions would need to seek an exemption from both their primary regulator and FinCEN.
The bottom line is this: The new “SAR Exemption” rules really just correct a technicality so that financial institutions could now potentially receive an exemption from SAR reporting requirements from FinCEN, if the institution also receives an exemption from their primary regulator.
The FDIC proposed rule can be found here.
The Federal Reserve proposed rule can be found here.
The OCC proposed rule can be found here.
The NCUA proposed rule can be found here.
