[Federal Register Volume 64, Number 59 (Monday, March 29, 1999)]
[Proposed Rules]
[Page 14845]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7583]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 326

RIN 3064-AC19


Minimum Security Devices and Procedures and Bank Secrecy Act 
Compliance

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Withdrawal of notice of Proposed Rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) published a 
Notice of Proposed Rulemaking in the Federal Register on December 7, 
1998. The proposed regulation would have required state nonmember banks 
to develop and maintain ``Know Your Customer'' programs. The FDIC 
received 254,394 comments from the public during the comment period. 
The overwhelming majority of the commenters were strongly opposed to 
the adoption of the proposed regulation. After considering the issues 
raised by the comments, and in view of the strong opposition to the 
proposed regulation, the FDIC is withdrawing the Notice of Proposed 
Rulemaking.

DATES: Proposed subpart C to part 326 is withdrawn on March 29, 1999.

FOR FURTHER INFORMATION CONTACT: Carol A. Mesheske, Chief, Special 
Activities Section, Division of Supervision (202) 898-6750, or Karen L. 
Main, Counsel, Legal Division (202) 898-8838.

SUPPLEMENTARY INFORMATION:

I. Background

    On December 7, 1998, the FDIC published a proposed amendment to 
Part 326 of the FDIC's Rules and Regulations, ``Minimum Security 
Devices and Procedures and Bank Secrecy Act Compliance'' (63 FR 67529, 
Dec. 7, 1998). The proposed amendment was intended to provide guidance 
to state nonmember banks to facilitate and ensure their compliance with 
existing federal reporting and recordkeeping requirements, such as 
those found in the Bank Secrecy Act. It was intended to help protect 
the integrity and reputation of the financial services industry and 
assist the government in its efforts to combat money laundering and 
other illegal activities that might be occurring through financial 
institutions.
    The proposed amendment required each state nonmember bank to 
develop a program to determine the identity of its customers; determine 
its customers' sources of funds; determine the normal and expected 
transactions of its customers; monitor account activity for 
transactions that are inconsistent with those normal and expected 
transactions; and report any transactions of its customers that are 
determined to be suspicious, in accordance with the FDIC's existing 
suspicious activity reporting regulations.
    The FDIC's proposal was substantially the same as the regulations 
proposed by the Board of Governors of the Federal Reserve System, the 
Office of the Comptroller of the Currency, and the Office of Thrift 
Supervision in December 1998. The FDIC issued the proposed amendment 
pursuant to its authority under section 8(s)(1) of the Federal Deposit 
Insurance Act (FDI Act) (12 USC 1818(s)(1)), as amended by section 
2596(a)(2) of the Crime Control Act of 1990 (Pub. L. 101-647), which 
requires the FDIC to issue regulations directing banks under its 
supervision to establish and maintain internal procedures reasonably 
designed to ensure and monitor compliance with the Bank Secrecy Act. 
The FDIC also relied on its general rulemaking authority under section 
9(a) of the FDI Act (12 USC 1819(a)).

II. Comments Received

    During the comment period, the FDIC received 254,394 comments from 
the public. Comments were received from community banks, multinational 
or large regional banks, members of Congress, trade and industry 
research groups, and regulatory bodies, as well as the general public. 
Only 105 commenters were in favor of the proposed regulation.
    The overwhelming majority of commenters were individual, private 
citizens who voiced very strong opposition to the proposal as an 
invasion of personal privacy. Other issues raised by these commenters 
included that the FDIC lacked the authority to issue the proposal; the 
cost of any Know Your Customer program would be passed on to customers; 
and the regulation would be ineffective in preventing money laundering 
and other illicit financial activities.
    Banks, bank holding companies and other banking trade groups that 
commented on the proposal uniformly opposed the proposed amendment. 
Their concerns included the following: (1) the regulation would be very 
costly to implement, especially for small banks; (2) the Know Your 
Customer program would invade customer privacy; (3) commercial banks 
would be unfairly disadvantaged and lose customers if all segments of 
the financial services industry are not covered; (4) compliance with 
the regulation would divert resources from Y2K preparation; (5) the 
FDIC lacks authority to adopt the regulation; (6) public confidence in 
the banking industry would be harmed by the regulation; and (7) the 
regulation is both unnecessary and redundant, as banks are already 
familiar with their customers and have adequate procedures in place.

III. Paperwork Reduction Act

    The FDIC submitted a collection of information associated with the 
Know Your Customer proposed rulemaking to the Office of Management and 
Budget for review. That request for review is withdrawn.

IV. Board Decision

    The FDIC has carefully reviewed every comment received during the 
90-day comment period. Based upon that review, and in light of the 
overwhelming objections raised by the public, the FDIC's Board of 
Directors has decided to withdraw the proposed regulation.

    By Order of the Board of Directors.
    Dated at Washington, D.C. this 23rd day of March, 1999.

Federal Deposit Insurance Corporation
Robert E. Feldman,
Executive Secretary.
[FR Doc. 99-7583 Filed 3-26-99; 8:45 am]
BILLING CODE 6714-01-P