FinCEN Urges Financial Institutions to Share Data Against Illicit Finance

The Financial Crimes Enforcement Network (FinCEN) issued guidance on September 5, 2023, aimed at enhancing voluntary cross-border information sharing among financial institutions. This initiative seeks to empower banks and other entities to combat money laundering, terrorist financing, and other illicit financial activities linked to drug trafficking organizations and fraudsters.

In its press release, FinCEN clarified that while financial institutions are prohibited from sharing Suspicious Activity Reports (SARs) and any information that could indicate a SAR exists, the regulations under the Bank Secrecy Act do not generally prevent cross-border information sharing. This guidance underscores the potential benefits of collaboration among financial institutions, suggesting that sharing data can enhance their ability to detect and address illicit financial activities.

According to the guidance, useful information may include transaction records, customer and account details, and investigative materials. FinCEN stated that sharing this information can significantly improve the effectiveness of financial institutions in combating illicit finance, rather than keeping such data isolated within individual organizations.

Collaborative Efforts in Financial Security

The guidance was developed in consultation with several key regulatory bodies, including the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the National Credit Union Administration. This collaborative approach reflects a growing recognition of the importance of data sharing in the financial sector.

A report from PYMNTS in December indicated that institutions within critical sectors, such as banking and payments, are increasingly recognizing the advantages of information sharing to mitigate fraud. By combining anonymized data from multiple sources, these organizations can identify suspicious patterns that may otherwise go unnoticed.

Nonetheless, the process of data sharing is not without its challenges. Financial institutions must navigate privacy concerns and regulatory requirements to ensure that their data remains secure, clean, and compliant. Pradheep Sampath, Chief Product Officer at Entersekt, noted in August that while historical data is essential for fraud prevention, institutions also require innovative tools like transaction-driven insights and behavioral signals to keep pace with evolving threats.

Sampath emphasized the need for both accuracy and speed in identifying fraudulent activities while protecting legitimate users. “Looking back can’t always give you answers to evolving threat vectors,” he stated.

Rising Threats and Financial Impact

The PYMNTS Intelligence report, “The State of Fraud and Financial Crime in the U.S. 2024: What FIs Need to Know,” revealed that 40% of financial institutions reported an increase in fraud-related losses over the past year. This statistic highlights the urgency for financial organizations to adopt more proactive measures in their operations.

As the landscape of financial crime continues to change, the encouragement from FinCEN for enhanced information sharing represents a crucial step toward building a more resilient financial system. By fostering collaboration, financial institutions can better position themselves to fight against the complex challenges posed by illicit finance.