District Circular Letters
 District
Circular Letters Index
December 11, 1998
BANK SECRECY ACT REGULATIONS:
"KNOW YOUR CUSTOMER" PROGRAMS
To State Member Banks, Bank Holding Companies,
Edge Act Corporations, U.S. Branches and Agencies
of Foreign Banks, and Others Concerned
in the Twelfth Federal Reserve District
Proposed Rule Regarding "Know Your Customer" Programs (Docket
R-1019)
The Federal Reserve Board is requesting comment on a proposed rule that
will require the domestic and foreign banking organizations supervised
by the Federal Reserve to develop and maintain "Know Your Customer" programs.
Comment is requested by March 8, 1999.
The proposed "Know Your Customer" rule would allow each banking organization
to decide how, consistent with its own business practices, it can best
- identify its customers;
- understand its customers' normal and expected transactions; and
- monitor customer transactions in order to, among other things, identify
and report suspicious transactions in accordance with the Board's existing
suspicious activity reporting requirements.
The proposed rule is designed to build on existing policies. For the
majority of banking organizations, establishing a "Know Your Customer"
program would involve little more than formalizing current operating procedures.
For example, banking organizations involved in retail banking activities
would need only minimal revisions to existing account-opening procedures
to determine the identity of a customer, and would be able to employ procedures
already in place to understand the normal transactions of a customer and
identify and appropriately report suspicious transactions.
The proposed rule would allow banks and other financial institutions
to establish "Know Your Customer" programs tailored to their size and
to the activities of their customers. The proposal would not require that
every transaction of every customer be reviewed on a daily basis. For
example, banks would be allowed to establish minimal procedures for monitoring
the checking accounts of those of their customers who generally only deposit
payroll checks and pay routine bills.
The proposed rule does not violate existing privacy protections. Under
current federal law, banks and other financial institutions are required
to maintain the confidentiality of customer information and records. The
"Know Your Customer" proposal would not require banks and other financial
institutions to obtain or disclose customer information that they do not
already legally collect.
Written "Know Your Customer" procedures should be an important component
of the anti-money laundering programs of banking organizations. Strong
"Know Your Customer" programs serve to protect the reputation of financial
institutions, facilitate their compliance with applicable statutes and
regulations (including the Bank Secrecy Act), and guard the institutions
from becoming a vehicle for, or a victim of, illegal activities perpetrated
by their customers.
The Board's proposed rule was issued concurrently with nearly identical
proposals of the Office of the Comptroller of the Currency, the Federal
Deposit Insurance Corporation and the Office of Thrift Supervision.
Copies
Copies of the Board's notice (Docket
R-1019) are available from our Corporate Services Department.
To request copies to be sent via mail, please call (415) 974-2748.
To request copies to be sent via fax, please call (415) 974-3333,
and specify document number 4181.
Additional Information
For additional information regarding the Board's "Know Your Customers"
proposal, please contact our Banking Supervision and Regulation Department,
at (415) 974-2932.
FEDERAL RESERVE BANK OF SAN FRANCISCO
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