Why Banks Should Preserve FCC Operations Amid Regulatory Rollbacks: Key Insights and Strategies

The recent regulatory changes in the banking and financial services sector have raised significant concerns among financial crime compliance (FCC) teams. As the landscape shifts, particularly under the Trump administration’s approach to deregulation, many are left wondering how to adapt. A key announcement came on March 21, 2025, when the U.S. Treasury revealed it would no longer enforce major aspects of the Corporate Transparency Act (CTA).

Impact of the Corporate Transparency Act (CTA) Changes

The CTA previously mandated that businesses disclose their ultimate beneficial owners (UBOs) to the federal government. However, the new rule introduces extensive exemptions for domestic reporting companies, effectively reducing the number of entities required to report from approximately 32 million to just 12,000. This represents a staggering 99% exemption rate.

• Domestic UBO Reporting Obligations: Nearly eliminated.
• Foreign Organizations: Exempt from disclosing UBO information.
• Anti-Money Laundering (AML) Efforts: Major components are undermined.

Critics, including Ian Gary, executive director of the FACT Coalition, argue that this rule contradicts established evidence showing that U.S. shell companies are often exploited for criminal activities. He asserts that the rule is “very unlikely to be upheld in court,” as state attorneys general and local enforcement agencies are expected to challenge it vigorously.

State-Level Response and Increased Scrutiny

As federal enforcement wanes, banks should brace for heightened scrutiny from state regulators. Historical trends indicate that state interventions typically surge during periods of federal deregulation. For instance:

• The New York State Department of Financial Services fined Robinhood’s cryptocurrency arm $30 million in 2022 for alleged BSA/AML compliance failures.
• In 2024, ICBC faced $32.4 million in penalties due to deficiencies in its New York branch’s AML program.

In January 2025, the Conference of State Bank Supervisors (CSBS) imposed an $80 million fine on Block, Inc. after a multi-state examination revealed violations of the Bank Secrecy Act and AML laws. This trend signals that states are ready to act collaboratively to enforce compliance.

Challenges for Financial Crime Compliance Teams

The evolving regulatory landscape poses new challenges for FCC teams. Although banks have previously adapted to regulatory cycles, the current fragmentation and unpredictability heighten the stakes:

• Non-compliance Risks: Heavy financial penalties, reputational damage, and loss of customer trust.
• International Oversight: Expanding scrutiny from regulators, including the UK’s Financial Conduct Authority (FCA), which is broadening its operations into the U.S. and Asia.

Despite federal deregulation efforts surrounding AML, sanctions compliance remains unaffected. Banks must continue prioritizing adherence to sanctions rules as part of their FCC operations.

For more insights on navigating compliance in the changing regulatory landscape, visit our compliance updates. To understand the implications of these regulatory changes further, refer to Politico’s analysis.