• The Federal Reserve has proposed raising the threshold for formal BSA and AML enforcement actions
• Banks would generally face citations only for significant or systemic program failures
• The proposal aligns with wider AML reforms introduced under the Anti-Money Laundering Act of 2020
• Regulators are emphasizing effective risk-based financial crime controls over procedural compliance
• Banks will still be expected to maintain robust customer due diligence, monitoring and sanctions controls



The Federal Reserve has unveiled a proposal that would make it more difficult for supervisors to issue formal citations against banks for Bank Secrecy Act and anti-money laundering deficiencies, signaling another step toward a more risk-based approach to financial crime supervision.

Under the proposal, banks would generally face formal supervisory action only where failures are considered "significant or systemic," rather than for isolated weaknesses in maintaining anti-money laundering programs.

The changes are intended to align the Federal Reserve's rules with broader reforms introduced under the Anti-Money Laundering Act of 2020, which sought to make AML compliance more effective and intelligence-led rather than focused on procedural compliance.

The proposal follows similar rulemakings issued earlier this year by the Financial Crimes Enforcement Network, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.

Together, the agencies are seeking to modernize AML expectations by encouraging banks to allocate resources according to actual financial crime risks rather than attempting to satisfy every procedural requirement equally.

Federal Reserve officials said the amendments would require supervised institutions to maintain anti-money laundering and countering the financing of terrorism programs that are "reasonably designed" to identify, assess and mitigate illicit finance risks.

Rather than changing banks' underlying legal obligations, the proposal refines how supervisory findings would be evaluated when determining whether formal enforcement action is warranted.

The changes have attracted considerable attention from compliance officers and bank risk managers, many of whom have argued for years that existing supervisory practices can encourage excessive documentation instead of focusing resources on identifying genuinely suspicious activity.

Industry groups have generally welcomed the direction of travel, arguing that a clearer distinction between minor control deficiencies and material program failures should enable institutions to devote more time and investment toward higher-risk customers, emerging typologies and sophisticated financial crime threats.

At the same time, regulatory specialists caution that the proposal should not be interpreted as a relaxation of anti-money laundering standards.

Banks would still be expected to maintain comprehensive customer due diligence, suspicious activity monitoring, sanctions screening and beneficial ownership controls. Institutions would also remain subject to enforcement where weaknesses materially undermine the effectiveness of their AML frameworks.

For chief compliance officers, the proposal reinforces the growing importance of enterprise-wide risk assessments.

Banks will need to demonstrate not only that they have established appropriate AML controls but also that those controls are proportionate to the financial crime risks arising from their products, services, customers, delivery channels and geographic footprint.

The consultation also reflects a broader regulatory shift toward effectiveness-based supervision.

Rather than measuring success through the volume of alerts generated or documentation produced, supervisors increasingly want evidence that institutions can identify, assess and mitigate meaningful financial crime risks while providing highly useful information to law enforcement.

Some governance specialists have nevertheless urged caution. They argue that raising the threshold for formal citations could create uncertainty around where supervisors will draw the line between isolated operational weaknesses and systemic failures, potentially increasing the importance of examiner judgment during supervisory reviews.

The proposal arrives as financial institutions confront increasingly sophisticated money laundering techniques involving digital assets, sanctions evasion, trade-based financial crime and organized fraud.

Against that backdrop, many banks have invested heavily in artificial intelligence, advanced analytics and network analysis to improve the effectiveness of transaction monitoring while reducing false positives.

Comments on the proposal are due later this year before the Federal Reserve determines whether to finalize the amendments.

Regardless of the outcome, the initiative signals that U.S. regulators are seeking to recalibrate supervision around risk-based outcomes rather than procedural compliance alone.

Effective financial crime controls are still essential, but these developments suggest regulators increasingly want institutions to demonstrate that they are directing resources toward the areas of greatest illicit finance risk rather than simply producing larger volumes of compliance documentation.