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Regulatory changes are nothing new in the banking and financial services industry. However, the Trump administration is scaling back regulations and enforcement rapidly, and your bank compliance teams – particularly financial crime compliance (FCC) teams – may be wondering how to manage through the changes.
Some background on the most significant change
On March 21, 2025, The U.S. Treasury made it official that they are not going to enforce most of the Corporate Transparency Act (CTA). Treasury issued an interim final rule that institutes broad exemptions for domestic reporting companies under the law. The law requires businesses to reveal their true owners – ultimate beneficial owners (UBO) – to the federal government.
The elimination of UBO reporting obligations for domestic companies will reduce the total number of reporting companies from approximately 32 million to 12 thousand – a 99 percent exemption rate. Not only that, foreign organizations with an office domiciled in the U.S. are also exempt from filing ultimate beneficiary data – effectively eliminating the most critical piece of U.S. anti-money laundering (AML) reform in decades.
The rule contradicts decades of evidence that proves criminal actors depend upon U.S. shell companies to hide their ill-gotten gains.
Does this mean financial crime compliance (FCC) teams at banks get a pass?
The short answer is “No,” and this blog post explains why.
Challenges to the new rule will likely come soon
Ian Gary, executive director of the FACT Coalition, in discussing the new rule, spoke of it plainly, stating that it is “very unlikely to be upheld in court.” The fact is, state attorneys general and local law enforcement agencies had been ready to gain access to the Treasury’s UBO database, and it is widely anticipated that they will claim to have suffered harm from the new rule.
Moreover, today’s Treasury would have a hard time defending the new rule. That’s because, under the statute, the Treasury Secretary only has the authority to make reporting exemptions if the Department of Homeland Security and the Attorney General agree that the UBO reporting “would not serve the public interest” and “would not be highly useful” to investigators. Those would be extremely difficult cases to make for the Treasury Secretary. As Politico pointed out on March 25, 2025, “In that regard, Treasury’s interim final rule contradicts more than 10 years of Treasury National Risk Assessments and Congress’ own findings, which make it clear that domestic anonymous entities represent a significant money laundering risk.” In addition to exempting domestic entities entirely, the rule also exempts U.S. owners of foreign companies from reporting requirements.
States-driven regulatory scrutiny will likely increase
In the face of federal AML deregulation, banks should be prepared for increased scrutiny from regulators at the state level.
According to a recent Risk Management Association blog, states stepping in to close regulatory gaps is nothing new and is a trend that started during the Reagan administration, paused during the Clinton administration, and then kicked in again during the early years of the early 2000s Bush administration. During the Reagan and Bush administrations, the federal government scaled back enforcement of banking oversight and consumer protection, leading states to introduce their own new regulations.
WorkFusion recently highlighted several state-led enforcement actions against financial institutions that failed to properly comply with federal Bank Secrecy Act and anti-money laundering (BSA/AML) regulations as well as state AML regulations. For example, On August 1st of 2022, the New York State Department of Financial Services (NYDFS) announced a Consent Order and $30 million fine against Robinhood’s cryptocurrency trading unit. NYDFS enforcement was based on Robinhood allegedly failing to comply with NYDFS rules pertaining to the BSA/AML rules.
In 2024, a joint action by the Fed and NYDFS led to an order against ICBC for “numerous” compliance failures, including multiple deficiencies in the New York branch’s AML program between 2018 and 2022. ICBC had to pay $32.4 million in fines and penalties.
States have already teamed up to fight in 2025
According to the January 2015 SETTLEMENT AGREEMENT AND CONSENT ORDER between BLOCK, INC. and 48 states, State Money Transmission Regulators commenced a multi-state examination of Block to determine Block’s compliance with applicable State and Federal laws and regulations. The Multi-State Examination was conducted by the State Money Transmission Regulators of California, Colorado, Kentucky, Massachusetts, New Hampshire, Ohio, Texas, and Washington.
A January 2025 press release by the Conference of State Bank Supervisors (CSBS) revealed that Block will pay an $80 million fine and undertake corrective action for violations of the Bank Secrecy Act and AML laws.
Regulatory unpredictability means more work for FCC teams
According to the Risk Management Association, the banking industry has adapted to cycles of regulation and deregulation over the years. Yet, at the same time, changes often create challenges, and those are highly likely to appear in a more fragmented and uncertain regulatory landscape.
As referenced above, failure to comply with regulations can result in significant financial penalties. They can damage a financial institution’s reputation and lead to lost customer confidence.
Banks could also experience stricter oversight from other countries around the world. For example, in April of 2025, the U.K.’s Financial Conduct Authority (FCA) expanded operations in the U.S. and Asia in a move that further reminds FIs that the U.S. Treasury Department is not the only federal body enforcing AML and other FinCrime-related regulations.
Sanctions compliance remains unaffected
Regardless of what happens with AML regulations and enforcement, the world of sanctions compliance has not changed one bit. Sanctions compliance represents a significant portion of financial crime compliance for banks and other FIs, and there is no reason for banks to scale back FCC operations in this area.
Frequent changes in U.S. Government leadership
Currently, a single party (the Republican Party) has the majority in the U.S. House of Representatives and the U.S. Senate. However, that balance of power is new and changes often. So, another round of midterm elections in 2026 could see the balance of power shift to the Democrats…or possibly not. Then, in 2028, a new presidential election will take place. As a result of these elections possibly changing who rules over regulations and enforcement pressure, banks and other FIs need to be ready to deal with potential major swings of the ‘regulatory leadership pendulum.’
Considering that both state and federal investigations typically date back years, it would be folly to relax FCC operations. In an industry where companies are competing for customers based on reputation and stability, it only makes sense for banks to continue innovating, improving, and gaining efficiencies in their FCC operations.
To learn how WorkFusion AI Agents for FCC compliance can keep your organization prepared for any regulatory eventuality, schedule a demo today.