Potential regulatory changes aimed at Puerto Rico underscore stronger AML compliance

February 6, 2017

Puerto Rico’s position in the financial industry continues to gain traction despite the country’s economic woes. One of the factors driving this momentum is the island’s rapid growth in recent years as a viable international banking center for foreign persons who seek preferred depository and lending relationships outside their home countries.

Puerto Rico began issuing operating licenses to international banking entities in 1989. By 2016, there were 61 total international banking entities licensed in Puerto Rico comprised of EBIs (International Banking Entities) and EFIs (International Financing Entities). Data provided by the Puerto Rico’s Commissioner of Financial Institutions (OCIF) suggests that these entities have grown at a rapid rate in the last few years and their importance to the overall financial sector is evident. Total assets held by international banking entities, combined, surpassed total assets held by Puerto Rico’s domestic commercial banks in 2016. By 2016 (Q3), the international entities held approximately 42% of total assets of all Puerto Rico financial institutions compared to 37% held by domestic banks.

U.S. regulators took notice in August 2016 and proposed that institutions not insured by the FDIC such as international banking entities in Puerto Rico (and US Virgin Islands) establish an anti-money laundering (AML) compliance program. It is unclear whether the Trump administration will impact this proposed rule. The Federal Reserve already imposes very stringent AML requirements for banks seeking to gain online access to the Fedwire Funds Service. The proposed rule would make AML compliance programs an official requirement under the governing regulatory regime of U.S. banking laws and would likely raise the bar on what is a suitable AML compliance program.

Never in our history has AML compliance played a more critical role than it does today. With the growth of Puerto Rico’s international financial sector, compliance officers and senior management of international banking entities have greater responsibilities to ensure that their banks are adequately prepared to manage their compliance risks.

Integro Advisers is proud to be participating as a sponsor of the 14th Puerto Rican Symposium of Anti Money Laundering taking place on February 16 & 17. Please reach out to us to set up a meeting or simply stop by our booth. We look forward to seeing you at the upcoming event.