In Kisor v. Wilkie, the Supreme Court reconsidered the longstanding Supreme Court precedent of Bowles v. Seminole Rock & Sand Co. and Auer v. Robbins, which had held that a federal agency has the power both to write an ambiguous regulation and to require the federal courts to defer to the agency’s interpretation of that ambiguous regulation. Auer narrowly avoided being overruled in Kisor, which was replete with criticisms of “Auer deference.”

The Kisor decision has potentially profound implications for financial institutions, as Jeffrey Alberts and Pinchus Raice, Co-Chairs of Pryor Cashman’s Financial Institutions Group, and Associate Dustin Nofziger explained in the September 2019 issue of The Banking Law Journal. Attorneys for financial institutions and their clients know well that federal banking agencies have long treated the FFIEC Manual’s recommendations and requirements relating to the agencies’ Bank Secrecy Act (BSA) regulations as legally binding. This makes it dramatically easier for the federal banking agencies to prove that a bank has violated their regulations, which are ambiguous without reference to the guidance contained in the FFIEC Manual.

There is now good reason, however, to believe that federal courts will no longer assume that the FFIEC Manual is legally binding. Kisor provides banks with ammunition to push back against the FFIEC Manual’s interpretations of the federal banking agencies’ BSA regulations in circumstances where the FFIEC has misinterpreted or effectively re-written the regulations.

As the article notes, if federal judges are no longer required to defer to the federal banking agencies’ interpretations of their respective “four pillars” regulations under Auer, it may be difficult for the agencies to successfully defend BSA enforcement actions that financial institutions appeal to the federal courts for review. This could alter the ability of the federal banking agencies to effectively dictate how banks choose to comply with the agencies’ BSA regulations, and transform how banks and regulators think about BSA compliance.

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