[Federal Register Volume 75, Number 199 (Friday, October 15, 2010)]
[Rules and Regulations]
[Pages 63382-63383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25886]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

31 CFR Part 103

RIN 1506-AA93


Financial Crimes Enforcement Network; Amendment to the Bank 
Secrecy Act Regulations; Defining Mutual Funds as Financial 
Institutions; Extension of Compliance Date

AGENCY: Financial Crimes Enforcement Network (``FinCEN''), Treasury.

ACTION: Final rule; extension of compliance date.

-----------------------------------------------------------------------

SUMMARY: FinCEN is issuing this final rule extending the compliance 
date for those provisions in 31 CFR 103.33 that apply to mutual funds. 
On April 14, 2010, FinCEN issued a final rule that included mutual 
funds within the general definition of ``financial institution'' in 
regulations implementing the Bank Secrecy Act (``BSA''). The final rule 
subjects mutual funds to 31 CFR 103.33, which requires the creation, 
retention, and transmittal of records or information for transmittals 
of funds. FinCEN is extending, from January 10, 2011 to April 10, 2011, 
the date on which mutual funds must begin to comply with 31 CFR 103.33.

DATES: This final rule is effective on October 15, 2010. The compliance 
date for 31 CFR 103.33 is extended from January 10, 2011 to April 10, 
2011.

FOR FURTHER INFORMATION CONTACT: The FinCEN regulatory helpline at 
(800) 949-2732.

SUPPLEMENTARY INFORMATION: 

I. Background

    On April 14, 2010, FinCEN published a final rule \1\ to include 
mutual funds within the general definition of ``financial institution'' 
in regulations implementing the BSA (the ``Final Rule'').\2\ The Final 
Rule subjects mutual funds to rules under the BSA on the filing of 
Currency Transaction Reports (``CTRs'') and on the creation, retention, 
and transmittal of records or information for transmittals of funds. 
Additionally, the Final Rule amends the definition of mutual fund in 
the rule requiring mutual funds to establish anti-money laundering 
(``AML'') programs. The amendment harmonizes the definition of mutual 
fund in the AML program rule with the definitions found in the other 
BSA rules to which mutual funds are subject. Finally, the Final Rule 
amends the rule that delegates authority to examine institutions for 
compliance with the BSA. The amendment makes it clear that FinCEN has 
not delegated to the Internal Revenue Service the authority to examine 
mutual funds for compliance with the BSA, but rather to the U.S. 
Securities and Exchange Commission as the Federal functional regulator 
of mutual funds.
---------------------------------------------------------------------------

    \1\ Amendments to the Bank Secrecy Act Regulations; Defining 
Mutual Funds as Financial Institutions, 75 FR 19241 (April 14, 
2010).
    \2\ See 31 CFR 103.11(n)(10) (general definition of ``financial 
institution''). The BSA is codified in part at 31 U.S.C. 5311 et 
seq. Rules implementing the BSA are codified at 31 CFR part 103.
---------------------------------------------------------------------------

Section 103.33--The Recordkeeping and Travel Rule and Related 
Recordkeeping Requirements

    The Final Rule subjects mutual funds to requirements relating to 
the creation and retention of records for transmittals of funds, and 
the requirement to transmit information on these transactions to other 
financial institutions in the payment chain (``Recordkeeping and Travel 
Rule'').\3\ The Recordkeeping and Travel Rule applies to transmittals 
of funds in amounts that equal or exceed $3,000,\4\ and requires the 
transmittor's financial institution to obtain and retain name, address, 
and other information on the transmittor and the transaction.\5\ 
Furthermore, the Recordkeeping and Travel Rule requires the recipient's 
financial institution--and in certain instances, the transmittor's 
financial institution--to obtain or retain identifying information on 
the recipient.\6\ The Recordkeeping and Travel Rule requires that 
certain information obtained or retained by the transmittor's financial 
institution ``travel'' with the transmittal order through the payment 
chain.\7\
---------------------------------------------------------------------------

    \3\ See 31 CFR 103.33(f) and (g). Financial institutions must 
retain records for a period of five years. 31 CFR103.38(d).
    \4\ Rules under the BSA define a ``transmittal of funds'' and 
the persons or institutions involved in a ``transmittal of funds.'' 
See 31 CFR 103.11(d), (e), (q), (r), (s), (v), (w), (cc), (dd), 
(jj), (kk), (ll), and (mm). A ``transmittal of funds'' includes 
funds transfers processed by banks, as well as similar payments 
where one or more of the financial institutions processing the 
payment is not a bank. If the mutual fund is processing a payment 
sent by or to its customer, then the mutual fund would be either the 
``transmittor's financial institution'' or the ``recipient's 
financial institution.''
    \5\ See 31 CFR 103.33(f)(1)(i) and (f)(2).
    \6\ See 31 CFR 103.33(f)(3) (information that the recipient's 
financial institution must obtain or retain).
    \7\ See 31 CFR 103.33(g) (information that must ``travel'' with 
the transmittal order); 31 CFR 103.11(kk) (defining ``transmittal 
order''). Additionally, the Final Rule includes mutual funds within 
an existing exception designed to exclude from the Recordkeeping and 
Travel Rule's coverage funds transfers or transmittal of funds in 
which certain categories of financial institution are the 
transmittor, originator, recipient, or beneficiary. See 31 CFR 
103.33(e)(6)(i) and 31 CFR 103.33(f)(6)(i). Further, the Final Rule 
subjects mutual funds to requirements on the creation and retention 
of records for extensions of credit and cross-border transfers of 
currency, monetary instruments, checks, investment securities, and 
credit. See 31 CFR 103.33(a)-(c). Financial institutions must retain 
these records for a period of five years. 31 CFR 103.38(d).
---------------------------------------------------------------------------

    Mutual funds are subject to record retention requirements under the 
Investment Company Act of 1940, and mutual fund transfer agents are 
subject to recordkeeping requirements under the Securities Exchange Act 
of 1934.\8\ In light of these existing regulatory obligations, FinCEN 
stated in the notice of proposed rulemaking that the requirements of 31 
CFR 103.33 and 31 CFR 103.38 would have a de minimus impact on mutual 
funds and their transfer agents.\9\ Furthermore, rules under the BSA on 
the establishment of customer identification programs by mutual funds 
and on the reporting by mutual funds of suspicious transactions impose 
requirements to create and retain records.\10\
---------------------------------------------------------------------------

    \8\ See, e.g., 15 U.S.C. 80a-30 (mutual funds); 15 U.S.C. 
78q(a)(3) (transfer agents).
    \9\ Amendment to Bank Secrecy Act Regulations; Defining Mutual 
Funds as Financial Institutions, 74 FR 26996, 26998 (June 5, 2009).
    \10\ See 31 CFR 103.131 (mutual funds must obtain and record 
identifying information for persons opening new accounts, and verify 
the identity of persons opening new accounts); 31 CFR 103.15(c) 
(mutual funds must maintain records of documentation that supports 
the filing of a SAR).
---------------------------------------------------------------------------

    FinCEN also requested comment on the anticipated impact of 
subjecting mutual funds to the requirements of the Recordkeeping and 
Travel Rule. All three commenters noted that subjecting mutual funds to 
the requirements of the Recordkeeping and Travel Rule will require 
mutual funds to implement changes to their transaction processing and 
recordkeeping systems. All commenters requested additional time to 
comply with the Recordkeeping and Travel Rule. Commenters stated that 
such an extension would provide mutual funds with an opportunity to 
implement changes to their transaction reporting and recordkeeping 
systems. Generally, commenters suggested an extension of between 18 to 
24 months. FinCEN determined that extending the compliance date with 
respect to the requirements of the Recordkeeping and Travel Rule to 270 
days after the rule

[[Page 63383]]

was published in the Federal Register (January 10, 2011) was 
appropriate.
    On July 13, 2010, the Investment Company Institute (``ICI'') \11\ 
submitted a letter stating that it will be difficult for its members to 
comply with the Recordkeeping and Travel Rule by January 10, 2011. Due 
to unique industry end-of-year systems issues,\12\ as well as systems 
changes necessitated by other new regulatory requirements,\13\ the ICI 
has requested a three month extension of the date by which mutual funds 
are required to comply with the requirements of the Recordkeeping and 
Travel Rule.
---------------------------------------------------------------------------

    \11\ The ICI is an association of U.S. investment companies, 
including mutual funds, closed-end funds, exchange-traded funds 
(ETFs), and unit investment trusts (UITs). Members of ICI manage 
total assets of $11.42 trillion and serve 90 million shareholders.
    \12\ According to the ICI, most mutual funds and transfer agents 
refrain from implementing material modifications or enhancements to 
their transaction processing and recordkeeping systems for varying 
periods beginning in early December (generally referred to as a 
``freeze'') to ensure that the systems are capable of handling the 
large number of end-of-year fund and shareholder transactions, as 
well as the preparation of year-end account statements and tax 
reporting information. Because the January 10, 2011 compliance date 
falls within the period when mutual fund transaction processing and 
recordkeeping systems are frozen, mutual funds will need to come 
into compliance with the Recordkeeping and Travel Rule by the middle 
of November 2010--before the systems are frozen. A three-month 
extension of the compliance date would allow mutual funds sufficient 
time to come into compliance with the Recordkeeping and Travel Rule 
without disrupting the year-end operations and reporting functions.
    \13\ According to the ICI, mutual fund transfer agents are 
currently redesigning their systems in order to comply with new cost 
basis reporting requirements, which entail significant operational 
and technological changes to allow funds to capture, report, and 
transfer required tax information, such as when shareholders 
transfer their accounts (see Basis Reporting by Securities Brokers 
and Basis Determination for Stock, 74 FR 67010 (Dec. 17, 2009)). In 
addition, mutual funds and their transfer agents are updating their 
systems to comply with a new requirement that money market mutual 
funds and their transfer agents be able to process purchases and 
redemptions electronically at a price other than $1.00 per share 
(see Money Market Fund Reform, SEC Release No. IC-29132 (Jan. 27, 
2010)).
---------------------------------------------------------------------------

II. Extension of Compliance Date for the Recordkeeping and Travel Rule

    FinCEN believes that it is appropriate to extend the date by which 
mutual funds must comply with the Recordkeeping and Travel Rule. 
Therefore, mutual funds now will have until April 10, 2011 to comply 
with 31 CFR 103.33. We do not anticipate granting a further extension 
beyond April 10, 2011 and expect that mutual funds thereafter will have 
adequate processes in place to comply with the Recordkeeping and Travel 
Rule.

III. Proposed Location in Chapter X

    As discussed in a previous Federal Register Notice, 73 FR 66414, 
Nov. 7, 2008, FinCEN is separately proposing to remove Part 103 of 
Chapter I of Title 31, Code of Federal Regulations, and add Parts 1000 
to 1099 (Chapter X). If the notice of proposed rulemaking for Chapter X 
is finalized, the changes in the present rule would be reorganized 
according to the proposed Chapter X. The planned reorganization will 
have no substantive effect on the regulatory changes herein. The 
regulatory changes of this specific rulemaking would be renumbered 
according to the proposed Chapter X as follows: Sec.  103.33 would be 
moved to Sec.  1010.410.

IV. Notice and Comment Under the Administrative Procedure Act

    FinCEN for good cause finds that, for the reasons cited above, 
including the brief length of the extension we are granting, notice and 
solicitation of comment regarding the extension of the compliance date 
are impracticable, unnecessary and contrary to the public interest. In 
this regard, FinCEN notes that mutual funds need to be informed as soon 
as possible of the extension and its length in order to plan and adjust 
their implementation processes accordingly.\14\
---------------------------------------------------------------------------

    \14\ See 5 U.S.C. 553(b)(3)(B) (an agency may dispense without 
prior notice and comment when it finds, for good cause, that notice 
and comment are ``impracticable, unnecessary, and contrary to the 
public interest''). The change to the compliance date is effective 
upon publication in the Federal Register. The Administrative 
Procedure Act allows effective dates less than 30 days after 
publication in the Federal Register for ``a substantive rule which 
grants or recognizes an exemption or relieves a restriction.'' See 5 
U.S.C. 553(d)(1).

    Dated: October 6, 2010.
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2010-25886 Filed 10-14-10; 8:45 am]
BILLING CODE 4810-02-P