The California Bankers Association is opposing a Federal Deposit Insurance Company plan called Know Your Customer which would require banking institutions to monitor unusual transactions of every customer and report them to the government.

The plan was detailed for the first time publicly in WorldNetDaily earlier this week. As a result of public concern, the FDIC has extended the comment period regarding the proposed amendments to the Minimum Security Devices and Procedures and Bank Secrecy Act Compliance Program.

The FDIC proposal report reads, “‘Knowing’ its customers would encompass determining its customers’ source of funds; determining and monitoring the normal and expected transactions of its customers; and reporting appropriately any transactions of its customers that are determined to be unusual or suspicious, consistent with already existing FDIC regulations requiring the reporting of suspicious transactions.”

The FDIC says the changes are necessary to keep illicit banking transactions to a minimum.

“We didn’t back it in the first place,” said John Stafford of the California Bankers Association. “It emerged from the Treasury, the FDIC and the Federal Reserve. They all had comparable forms (of the proposed changes). The purpose of these regulations is to crack down on terrorism and drug trafficking by greatly limiting their ability to do business at a legitimate institution.”

Stafford said the proposal is not effective.

“Our view on the proposal is that it is intrusive and cumbersome,” he said.

Steve Katsanos of FDIC public affairs office said the proposal is not yet a final draft.

“This is the initial part of the rule-making process,” Katsanos said. “We are asking for input from the public and the industry so we can formulate a final regulation.”

The FDIC will gather all of the comments at the end of the 90-day period, and the FDIC staff will present its board of directors with a plan of action.

“At this point, we haven’t received any written comments because it has not been published in the Federal Register,” Katsanos said. “As for us, we want to see what the comments are. It’s hard to say now what the issues are going to be.”

One issue that could raise some questions is a banking customer’s right to privacy. As the rules stand now, banks are only required to report transactions involving $10,000 or more. If the proposal turns into required procedure, banks would have 48 hours to report all suspicious transactions.

“We think that, from this proposal, the Know Your Customer looks like ‘Invade your customers’ privacy,'” Stafford said. “It’s going to involve extensive monitoring of our private banking customers as well as business customers that only have deposit accounts, for example.”

The proposal says each bank will receive a blueprint for a course of action for implementing the new rules. Each bank, however, will be able to make adjustments that work for its own branch. The requirements on how to investigate its customers are not optional.

“Basically the Know Your Customer is a cluster of regulations and rules that will enlist the banks as detectives,” Stafford said. “They will have to track illegal money laundering transactions and report them to the federal government. We think there are some definite privacy concerns here, as well as some major paperwork concerns.”

Another concern that Stafford said might make people worry is the extra cost to install a high-maintenance program.

“This will definitely be costly to implement,” he said. “This will be part of the bank’s operating costs which will eventually translate into higher costs for banking customers.”

While Katsanos admits there will be no federal funding available to implement the program, he also said the proposal is far from being a final product.

“Certainly the FDIC is concerned with the privacy issue,” Katsanos said. “But this is the early phase of the process. No action is warranted at this point. This is just the beginning.”

For now, the CBA is asking all of its members to look at the proposal and give the association any feedback so it can submit a letter to the FDIC.

“The proposal is subject to change,” Stafford said. “It’s hard to predict what it might look like when it is all done. We are basically soliciting opinions right now so we can write a collaborative, detailed, lengthy letter to the FDIC.”

Comments from the public may be sent to Robert E. Feldman, Executive Secretary, Attn: Comments/OES, Federal Deposit Insurance Corporation, 550 17th Street
NW, Washington, DC 20429 or faxed to (202) 898-3838.

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