U.S. Won’t Require Banks to Monitor Customers

U.S. banking regulators Tuesday dropped a controversial proposal that would have required banks to monitor their customers more closely to try to spot illegal activities such as money laundering.

The proposed Know Your Customer rules sparked a public outcry and drew heavy fire from Congress and the banking industry, with opponents saying the plan amounted to a serious violation of personal privacy.

In a joint statement, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision said they had reevaluated the proposal and decided to withdraw it.

The FDIC alone received more than 225,000 comments on the plan, with the vast majority from opponents.

The regulations would have required banks to verify their customers’ identities, know where their money comes from and determine their normal pattern of transactions. Banks’ current obligation to report “suspicious” transactions to law enforcement authorities would have been expanded.

The regulators said they remained committed to battling money laundering but in the future would seek to reconcile this with privacy concerns.

Spurred by the public outcry, the Senate voted 88 to 0 this month in favor of a measure directing regulators to drop the Know Your Customer rules.

Bank groups had protested the burden the plan would have imposed on them.

Paul Schosberg, president of the trade organization America’s Community Bankers, urged the regulators not to revive the proposal in the future.