The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) on Tuesday proposed a broad rewrite of anti-money-laundering and counterterrorism-financing rules that would shift the focus of compliance from technical box-checking to whether a financial institution’s controls are actually effective. 

FinCEN said the proposal, which would give the bureau a greater role in U.S. regulatory enforcement and focus bank penalties on large-scale violations, is meant to let firms devote more attention and resources to higher-risk activity while reducing unnecessary burden on lower-risk areas. 

At the center of the proposal is a new framework that separates failures in program design from failures in day-to-day execution. FinCEN said institutions would have to both “establish” and “maintain” an effective, risk-based program, meaning they would need to design the required controls and then implement them in all material respects as their risk profiles evolve. 

The proposal would separately make risk assessment processes an explicit requirement across covered institutions. Those processes would have to identify and document money-laundering, terrorist-financing and other illicit-finance risks across products, services, distribution channels, customers, and geographies. Institutions would be expected to review and, where appropriate, incorporate FinCEN’s AML/CFT priorities.

The plan would also require financial institutions to keep their risk assessments, and the controls they inform, current as risk profiles change, FinCEN said.

If adopted, the rule would also give FinCEN a larger role in bank supervision. Under the plan, federal banking supervisors generally would have to give FinCEN at least 30 days’ advance written notice before taking a significant AML/CFT supervisory action, unless urgent circumstances require otherwise. 

FinCEN also said that once a bank has properly established its program, major supervisory or enforcement action tied to implementation would generally be aimed at significant or systemic failures, not lesser deficiencies. 

The Federal Reserve, Federal Deposit Insurance Corp., National Credit Union Administration, and Office of the Comptroller of the Currency are expected to collectively issue aligned proposals for the institutions they supervise, the bureau said. Public comments will be due 60 days after the proposal is published in the Federal Register. 

Read more from FinCEN here