New OFAC and FinCEN Frameworks Seek to Modernize U.S. Financial Crime Regulations
The American regulatory landscape is undergoing a period of modernization as federal regulators seek to strike a balance between maintaining effective compliance frameworks to address increasingly complex and evolving financial crime risks while avoiding over-burdening the already thin compliance departments found within domestic financial institutions. In recent weeks, proposed changes brought forth by the U.S. government have sought to create clearer, more consistent, and more easily adoptable regulatory obligations, simplifying processes for banks while ultimately strengthening their ability to identify, monitor, and respond to money laundering, sanctions violations, and other illicit financial activity.
FinCEN Moves to Rewrite Customer Due Diligence Requirements:
In mid-September, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) submitted a proposed rule to the Office of Management and Budget (OMB) with the potential to fundamentally revise federal Customer Due Diligence (CDD) requirements for domestic financial institutions. This proposal, coined Customer Due Diligence Requirements for Covered Financial Institutions, was officially received by the OMB on September 17th and represents another cog in the Trump Administration’s broader efforts to modernize the current CDD framework that has governed covered financial institutions for over a decade following the release of FinCEN’s final CDD Rule. That 2016 ruling established was ground-breaking, establishing four core obligations for financial firms: the identification and verification of customers, as well as that of beneficial owners of legal-entity customers, understanding the nature and purpose of customer relationships to develop risk profiles, and conducting ongoing monitoring to identify suspicious activity and update customer information on a risk basis to further dispel financial crime risks.2
Arguably the most significant development leading up to the newly proposed rule was FinCEN’s February 2026 exceptive relief order, a measure which officially eliminated the requirement for covered institutions to identify and verify a legal entity’s beneficial owners every time that said customer opened a new account. Under this order, institutions were effectively able to prioritize their CDD requirements to strictly the time of initial account opening, situations in which previously obtained information became unreliable or outdated, and/or circumstances where the institution’s risk-based CDD procedures required renewed verification, significantly reducing the regulatory load placed on financial service providers small and large. If enacted, the latest proposal would incorporate ongoing CDD obligations into the requirement that covered institutions maintain risk-based internal policies, procedures, and controls that are reasonably designed. FinCEN stated that this organizational change is intended to more accurately reflect existing industry practices rather than create more compliance costs for FI’s.2
For banks and other covered financial institutions, this proposal could reshape how CDD obligations are organized and integrated into existing AML programs, specifically regarding beneficial ownership information, client and transaction monitoring, and risk-based assessments, potentially easing compliance burdens and associated costs for the foreseeable future. If passed however, only time will tell how the changes could transform the banking compliance and risk management spheres.
OFAC Establishes Consolidated Sanctions Penalties Regulations:
Following the above-mentioned proposal, the Treasury Department kept busy. Just last week, the department’s Office of Foreign Assets Control (OFAC) also announced the implementation of a new Sanctions Penalties Regulations framework which effectively consolidated previously existing information regarding current sanctions-related fines, enforcement procedures, and the respective rights of persons under investigation into a single, comprehensive regulatory framework.1 While the rule does not make substantial changes to existing penalty provisions, OFAC representatives expressly stated that the move was warranted in order to standardize and centralize penalty-related regulations that had previously been dispersed throughout previous framework, making them more difficult to follow.
OFAC, the financial intelligence and enforcement wing of the U.S. Treasury responsible for enforcing economic and trade sanctions in support of U.S. national security and foreign policy objectives – administers and enforces numerous U.S. economic sanctions programs targeting foreign governments, individuals, entities, and other parties. These programs had previously been implemented through separate regulations within Chapter V of Title 31 of the Code of Federal Regulations, as well as through other established statutes, executive orders, and government mandates. Historically, this structure meant that the requirements of a sanctions program and information concerning its potential penalties were found spread across a multitude of different regulatory provisions. The new framework under 31 CFR Part 505 is intended to simplify that structure by establishing a set of standard sanctions penalty regulations applicable to transactions regulated pursuant to various components of the aforementioned Chapter V and to the independent economic sanction’s programs administered by OFAC. Most notably, Part 505 does not replace the individual sanctions programs themselves; the substantive safeguards, definitions, and licensing provisions that currently apply to established sanctions programs remain bound within that program’s individual regulations and other applicable authorities.
While relatively minor in scope, this update is still important for financial institutions and compliance professionals. Financial entities operating within the United States remain tasked with determining whether particular conduct violates the requirements of an applicable sanctions program or risk falling victim to potential fines of sanctions in their own right for non-compliance. The addition of Part 505 now becomes relevant to a firm’s day-to-day activities when considering what enforcement and penalty procedures may ultimately follow potential violations.
Citations
1. Office of Foreign Assets Control, US Department of the Treasury. Sanctions Penalties Regulations. Federal Register. 2026;91(185):60821-60825. 25 Sept. 2026.
2. Santos Sanneh, Ebrima. “FinCEN Moves to Rewrite Banks’ Due Diligence Requirements.” American Banker, 21 Sept. 2026.