United States: NYDFS Issues Final Rule Requiring Certification Of Compliance With AML Transaction Monitoring And Filtering Program Requirements

The New York Department of Financial Services (NYDFS) recently finalized a regulation that mandates detailed elements of the anti-money laundering (AML) transaction monitoring and sanctions filtering programs of covered institutions. The rule, published on June 30, 2016 (NYDFS Rule), also requires directors or senior officers to certify their institutions' compliance with these new standards.

The NYDFS Rule creates detailed state-level obligations for AML and sanctions compliance, areas that have traditionally been left to federal oversight. In some respects, the new rule goes beyond federal law, which has never codified the particulars of an AML transaction monitoring or sanctions filtering program in such detail.

NYDFS had issued its proposed rule on December 1, 2015, and in response to industry comments, it revised several aspects of the NYDFS Rule. For example, the NYDFS Rule permits slightly more flexibility in implementing the specific transaction monitoring and filtering requirements and allows officers other than the chief compliance officer (CCO) to sign the compliance certification. However, the basic programmatic and individual certification requirements remain the same. NYDFS has said that these requirements are necessary due to "shortcomings" it identified in these programs that are attributable to "a lack of robust governance, oversight, and accountability at senior levels."

Although the NYDFS Rule nominally only applies to New York-regulated banks, check cashers, and money transmitters (Regulated Institutions),1 it could more broadly affect the branches and affiliates of Regulated Institutions because large institutions use enterprise-wide transaction and monitoring systems.

The NYDFS Rule takes effect January 1, 2017, and the initial certification is due to NYDFS on April 15, 2018. Regulated Institutions thus have less than six months to put in place any programmatic changes necessary to achieve compliance.

Below we outline the requirements of the NYDFS Rule, highlight changes from the proposed rule, and note key implications for Regulated Institutions.

Transaction Monitoring Program.

Regulated Institutions are required to maintain a "reasonably designed" transaction monitoring program (either manual or automated) to monitor for potential violations of the Bank Secrecy Act (BSA) and to comply with their Suspicious Activity Reporting (SAR) obligations. A reasonably designed program should be based on the institution's risk assessment and include the following attributes, "to the extent they are applicable":

  • be reviewed at risk-based intervals and periodically updated to reflect changes to applicable laws, regulations and regulatory warnings, as well as any other information determined by the institution to be relevant;
  • match BSA/AML risks to the institution's businesses, products, services, customers, and counterparties;
  • use threshold values and amounts designed to detect potential money laundering or other suspicious or illegal activities;
  • be subject to end-to-end testing, both before and after implementation;
  • documentation articulating the detection scenarios and the underlying assumptions, parameters, and thresholds;
  • protocols regarding the investigation alerts, the process for deciding which alerts will result in a filing or other action, the operating areas and individuals responsible for making such a decision, and how the investigative and decision-making process will be documented; and
  • be subject to an ongoing analysis to assess the detection scenarios, the underlying rules, threshold values, parameters, and assumptions.

The NYDFS Rule reflects some concessions to industry comments on NYDFS' proposed rule. The transaction monitoring attributes are no longer strict requirements; they are required only "to the extent they are applicable" as part of a program "reasonably designed" to detect and report suspicious activity. Also, the proposed rule would have required transaction monitoring programs to "reflect all current BSA/AML laws, regulations and alerts, as well as any relevant information available from the institution's related programs and initiatives." By contrast, the NYDFS Rule provides flexibility for Regulated Institutions to periodically (rather than instantly) update their programs in response to changes to applicable laws and regulations.

Filtering Program.

Regulated Institutions are required to maintain a manual or automatic filtering program "reasonably designed" to interdict transactions prohibited by the US Treasury's Office of Foreign Assets Control (OFAC) sanctions programs. Like the transaction monitoring requirements, the filtering program attributes are to be based on a risk assessment and should be implemented to the extent applicable. The program should:

  • be based on technology, processes, and tools for matching names and accounts according to the institution's particular risks, transaction, and product profiles;
  • be subject to end-to-end testing, both before and after implementation;
  • include ongoing analysis to assess the technology and tools for matching names and accounts in light of the risks of the institution; and
  • include documentation that articulates the intent and design of the Filtering Program tools, processes, or technology.

In response to industry comments, the NYDFS Rule substitutes a reasonableness standard for what appeared to be strict liability under the proposed rule. It also focuses solely on OFAC and removes broader references to "watch lists" and politically exposed persons. In addition, the proposed rule would have required technology for matching names and accounts to be "adequate to capture prohibited transactions," while the NYDFS Rule requires only that the technology be "reasonably designed to identify" such transactions.

Attributes of Both Programs.

A separate provision in the NYDFS Rule lists required attributes common to the transaction monitoring and filtering programs, again to the extent they are applicable. They include:

  • identification of all data sources that contain relevant data and validation of data flows;
  • data extraction and loading processes to ensure proper transfer of data to any automated monitoring or filtering system;
  • governance, management oversight, and change management processes;
  • a vendor selection process if third parties are used;
  • adequate funding;
  • qualified personnel or third parties for designing, implementing, operating, testing, and analyzing the programs; and
  • periodic training of all stakeholders.

Program Changes.

To the extent that a Regulated Institution identifies areas for "material improvement," the institution must document any remedial efforts planned and underway and make such documentation available for inspection by the superintendent of NYDFS. The proposed rule would have prohibited institutions from modifying their transaction monitoring and filtering programs "to avoid or minimize" SAR filings based on alert volume or resource concerns, which would have prevented institutions from adjusting their systems in response to high numbers of false positives. Unlike the proposed rule, the NYDFS Rule provides Regulated Institutions some flexibility to update their transaction monitoring and filtering programs.

Certification Requirement.

Regulated Institutions will be required to adopt either an annual board resolution, signed by each director, or a senior officer "compliance finding" to certify compliance with the NYDFS Rule. The requirement reflects a continuing trend by NYDFS and federal regulators towards holding executives accountable for an institution's perceived AML and sanctions program failures.

The resolution or finding must certify that:

  • the board or senior officer(s) has reviewed the relevant documents, reports, certifications, and opinions of such officers, employees, representatives, outside vendors, and other individuals and entities as necessary to adopt the Board Resolution or Senior Officer Compliance Finding;
  • the board or senior officer(s) has taken "all steps necessary" to confirm that their institution's transaction monitoring and filtering program complies with the transaction monitoring and filtering requirements of NYDFS Rule; and
  • the institution's program is in compliance, "to the best of [signer's] knowledge," as of the date of the Board Resolution or Senior Officer Compliance Finding.

The proposed rule allowed only a CCO (or equivalent) to certify compliance, while the NYDFS Rule lets "senior officer(s)" or a board of directors meet this requirement. But it is not clear whether the change will have a practical effect. The NYDFS Rule defines "Senior Officer(s)" as "the senior individual or individuals responsible for the management, operations, compliance and/or risk of a Regulated Institution." This definition may be an acknowledgement that some CCOs may not have sufficient authority or broad enough perspective within their organizations to certify compliance with all required elements of the transaction monitoring and filtering programs. However, the NYDFS Rule does not clarify whether a single person with responsibility over just one of these areas (e.g., an operations officer) can satisfy the certification requirement, or whether multiple signers may be required to cover all of these areas.

Regulated Institutions must submit a compliance finding or board resolution on April 15 of each year, regardless of whether the institution is facing compliance challenges with its transaction monitoring and sanctions filtering programs. The NYDFS Rule does not describe what institutions should do when they are aware of material deficiencies in their programs that would prevent individuals from certifying complete compliance by the annual deadline.


Although the NYDFS Rule removes an express reference to criminal penalties, it states that it will be enforced pursuant to NYDFS' "authority under any applicable laws." NYDFS retains the authority to impose civil monetary and equitable sanctions and to refer matters to the New York attorney general for additional civil or criminal enforcement.2

Implications for Regulated Institutions.

The NYDFS Rule's detailed programmatic requirements differ from the approach of federal AML and sanctions regulations, which lack the specificity of the NYDFS regulation. Federal law requires financial institutions to implement risk-based AML programs but does not detail the programmatic elements of a transaction monitoring system. As a technical matter, OFAC rules do not require any specific filtering program, though regulatory guidance sets forth minimal expectations for sanctions programs and recommends a risk-based approach.3 While the NYDFS Rule requires transaction monitoring and filtering programs to be "risk-based," Regulated Institutions may face difficulty explaining to NYDFS a decision not to implement any one of the rule's specific transaction monitoring or filtering attributes.

Banks covered by the NYDFS Rule may face compliance resource challenges to adapt to both this rule and FinCEN's new regulations on beneficial ownership and customer due diligence released earlier this year. Compliance with the new FinCEN rules is required by May 2018, just one month after the first certification is due on the NYDFS Rule. Both rules will require institutions' prompt assessment of their existing AML systems so that there is sufficient time to implement and validate system changes necessary to comply with each rule.


1. The NYDFS Rule applies to "Bank Regulated Institutions," defined as "all banks, trust companies, private bankers, savings banks, and savings and loan associations chartered pursuant to the New York Banking Law (the 'Banking Law') and all branches and agencies of foreign banking corporations licensed pursuant to the Banking Law to conduct banking operations in New York." It also applies to "Nonbank Regulated Institutions," defined as "all check cashers and money transmitters licensed pursuant to the Banking Law." The NYDFS Rule does not cover federally chartered depository institutions; persons subject to NYDFS' new "BitLicense" digital currency regulations, which have separate AML requirements; broker-dealers, which are subject to the BSA and FINRA Rules such as Rule 3310; casinos, which are subject to the BSA; or insurance companies, which are also regulated by NYDFS and in some cases are subject to federal AML rules.

2. N.Y. Fin. Serv. Law § 301(c)(4) (giving NYDFS the authority to refer matters to the New York Attorney General); N.Y. Banking Law § 672 (prohibiting the falsification of books, reports, or statements of banks).

3. FFIEC, Bank Secrecy Act/Anti-Money Laundering Examination Manual (2014), at 145. The NYDFS Rule's impact may be greater on New York money transmitters and check cashers, which are not covered by federal bank regulatory guidance and thus are not subject to prudential regulatory expectations that they maintain an OFAC compliance program.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions