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Compliance Update with Amy K by Amy Kleinschmit, Chief Compliance Officer FinCEN Notice – Online Child Sexual Exploitation Crimes The Financial Crimes Enforcement Network (FinCEN) recently issued FIN-2021-NTC3 to call attention to online child sexual exploitation (OCSE) crimes. Crimes related to OCSE, including the funding, production, and distribution of child sexual abuse materials, have increased during the COVID-19 pandemic, according to multiple law enforcement authorities. Be sure to review this notice in its entirely as it includes specific suspicious activity reporting filing instructions as well as financial trends related to OCSE. As discussed in the notice, FinCEN has found that between 2017 and 2020, there was a 147 percent increase in OCSE-related SAR filings, including a 17 percent year-over-year increase in 2020. The notice also notes that OCSE offenders are increasingly using convertible virtual currency (CVC - some of which provide anonymity), peer-to-peer mobile applications, the darknet, and anonymization and encryption services to try to avoid detection. Ten-Digit Dialing Coming in October for Some Areas The Federal Communications Commission (FCC) recently released the following information on ten-digit dialing. Heads up – this will impact South Dakota, in addition to other states. What is Ten-Digit Dialing? A ten-digit dialed telephone call requires entering both the three-digit area code and the seven-digit telephone number to complete the call, even if the area code is the same area code as your own. When an area code transitions to ten-digit dialing, you will no longer be able to dial seven digits to make a local call. Transitioning to ten-digit dialing will not affect your current telephone number. Your phone number, including your area code, will not change. In California and in Illinois area code 708, you may be required to dial the number "1" before the area code and seven-digit phone number for local calls. Upcoming Transitions to Ten-Digit Dialing: Where and When? There are 82 area codes in 35 states and one U.S. territory that currently use "988" as their local exchange and allow seven-digit dialing. A local exchange, also known as a central office code, is the first three numbers of a seven-digit telephone number. To prepare for implementation of a quick way to dial the National Suicide Prevention Lifeline – using only "988" to connect callers to the Lifeline – these area codes must transition to ten-digit dialing for all calls, including local calls. The North American Numbering Plan Administrator has a list of the states and area codes that will be affected. You can check the list to find out if your area code is one that will be transitioning. If you have one of these area codes, beginning on October 24, 2021, you must dial ten digits (area code + telephone number) for all local calls. On and after this date, local calls dialed with only seven digits may not connect, and a recording will inform you that your call cannot be completed as dialed. What Changes Will Businesses Need to Make? If your company uses a PBX or VoIP phone system, you may need to update or reprogram it for ten-digit dialing. Because ten-digit dialing became available in April 2021 in the areas where seven-digit dialing will be phased out in October 2021, reprogramming of PBX or VoIP systems can begin at any time. You should plan to complete any needed reprogramming and test your system before October 2021. Why Is Ten-Digit Dialing Necessary? In 2020, the FCC established "988" as the new, nationwide three-digit phone number for the National Suicide Prevention Lifeline. The new three-digit dialing code will be available nationwide by July 16, 2022 and will provide an easy to remember and easy to dial three-digit number to reach suicide prevention and mental health counselors, similar to "911" for emergencies and "311" for local government services. To help facilitate the creation of "988", area codes that use "988" as a local exchange, or the first three digits of a seven-digit phone number, will need to use 10-digit dialing. NCUA MDI Mentoring Grant Round Reopens Oct. 11 National Credit Union Administration (NCUA) recently announced that federally insured credit unions with both the minority depository institution and low-income designations are eligible to apply for the National Credit Union Administration’s MDI mentoring grants between Oct. 11 and Oct. 29. This grant round will provide approximately $100,000 to low-income credit unions with the MDI designation to support mentoring relationships that allow larger, experienced credit unions the opportunity to provide guidance to other MDIs. Grant requirements, application instructions and other details can all be found on the NCUA’s Grant Page. Credit unions with other questions about these grants may contact the NCUA’s Office of Credit Union Resources and Expansion at CUREAPPS@ncua.gov NCUA Request for Information – Due Monday, September 27 The National Credit Union Administration’s (NCUA) has an open request for information and comment regarding digital assets and related technologies. This Request for Information and Comment can be found here - AG20210722Item1b.pdf (ncua.gov). Comments must be received by Monday, September 27. The NCUA hopes to learn how the credit union community is using Decentralized Finance (DeFi) and Distributed Ledger Technology (DLT) technologies and gain additional feedback as to the role the NCUA can play in safeguarding the financial system and consumers in the context of these emerging technologies. The NCUA stresses that “the request for information does not speak to the permissibility or impermissibility of any specific activity.” Further, this request for information does not modify any existing requirements applicable to FICUs and does not grant FICUs any new authorities or limit any existing authorities. Decentralized Finance (DeFi) is the broad category of applications adopting peer-to-peer networks, Distributed Ledger Technology (DLT), and related uses, such as smart contracts, to create digital assets like cryptocurrency and crypto-assets, clearing and settlement systems, identity management systems, and record retention systems. Questions posed by the NCUA range from usage and marketplace to operational considerations. The NCUA also solicits feedback on risk and compliance management issues along with supervision and activities. Finally, the NCUA seeks feedback on share insurance and resolution concerns. Some of the questions for which the NCUA is seeking information include: How are those in the credit union system currently using or planning to use DLT and DeFi applications? In terms of the marketplace, where do those in the credit union system see the greatest demand for DeFi application services, and who are the largest drivers for such services? What are the advantages and disadvantages of FICUs developing DLT and DeFi projects through third-party relationships versus through a credit union service organization (CUSO)? What unique or specific risks are challenging to measure, monitor, and control for various DLT and DeFi applications? What unique controls or processes are or could be implemented to address such risks? Are there any unique aspects the NCUA should consider from a supervisory perspective? Are there any areas in which the NCUA should clarify or expand existing supervisory guidance to address these activities? Are there any steps the NCUA should consider to ensure FICU members can distinguish between uninsured digital asset products and insured shares? FREE Webinar: Money Laundering from Environmental Crime The Financial Action Task Force has announced it will conduct a webinar on Money Laundering from Environmental Crime on September 30, 2021 from 7:00–8:00 a.m. EDT. An international panel will discuss important aspects of the FATF Report on the topic, including how to identify red-flag information to help detect and trace the illicit finances of criminals engaged in environmental crimes. Participants will also debate how to overcome challenges, such as the lack of governmental or institutional prioritization, limited awareness and data, de-risking, and limited domestic and international co-ordination. Online registration is open. As always, DakCU members may contact amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.
Compliance Update with Amy K
by Amy Kleinschmit, Chief Compliance Officer
FinCEN Notice – Online Child Sexual Exploitation Crimes
The Financial Crimes Enforcement Network (FinCEN) recently issued FIN-2021-NTC3 to call attention to online child sexual exploitation (OCSE) crimes. Crimes related to OCSE, including the funding, production, and distribution of child sexual abuse materials, have increased during the COVID-19 pandemic, according to multiple law enforcement authorities. Be sure to review this notice in its entirely as it includes specific suspicious activity reporting filing instructions as well as financial trends related to OCSE.
As discussed in the notice, FinCEN has found that between 2017 and 2020, there was a 147 percent increase in OCSE-related SAR filings, including a 17 percent year-over-year increase in 2020. The notice also notes that OCSE offenders are increasingly using convertible virtual currency (CVC - some of which provide anonymity), peer-to-peer mobile applications, the darknet, and anonymization and encryption services to try to avoid detection.
Ten-Digit Dialing Coming in October for Some Areas
The Federal Communications Commission (FCC) recently released the following information on ten-digit dialing. Heads up – this will impact South Dakota, in addition to other states.
What is Ten-Digit Dialing?
A ten-digit dialed telephone call requires entering both the three-digit area code and the seven-digit telephone number to complete the call, even if the area code is the same area code as your own. When an area code transitions to ten-digit dialing, you will no longer be able to dial seven digits to make a local call.
Transitioning to ten-digit dialing will not affect your current telephone number. Your phone number, including your area code, will not change. In California and in Illinois area code 708, you may be required to dial the number "1" before the area code and seven-digit phone number for local calls.
Upcoming Transitions to Ten-Digit Dialing: Where and When?
There are 82 area codes in 35 states and one U.S. territory that currently use "988" as their local exchange and allow seven-digit dialing. A local exchange, also known as a central office code, is the first three numbers of a seven-digit telephone number. To prepare for implementation of a quick way to dial the National Suicide Prevention Lifeline – using only "988" to connect callers to the Lifeline – these area codes must transition to ten-digit dialing for all calls, including local calls. The North American Numbering Plan Administrator has a list of the states and area codes that will be affected. You can check the list to find out if your area code is one that will be transitioning.
If you have one of these area codes, beginning on October 24, 2021, you must dial ten digits (area code + telephone number) for all local calls. On and after this date, local calls dialed with only seven digits may not connect, and a recording will inform you that your call cannot be completed as dialed.
What Changes Will Businesses Need to Make?
If your company uses a PBX or VoIP phone system, you may need to update or reprogram it for ten-digit dialing. Because ten-digit dialing became available in April 2021 in the areas where seven-digit dialing will be phased out in October 2021, reprogramming of PBX or VoIP systems can begin at any time. You should plan to complete any needed reprogramming and test your system before October 2021.
Why Is Ten-Digit Dialing Necessary?
In 2020, the FCC established "988" as the new, nationwide three-digit phone number for the National Suicide Prevention Lifeline. The new three-digit dialing code will be available nationwide by July 16, 2022 and will provide an easy to remember and easy to dial three-digit number to reach suicide prevention and mental health counselors, similar to "911" for emergencies and "311" for local government services. To help facilitate the creation of "988", area codes that use "988" as a local exchange, or the first three digits of a seven-digit phone number, will need to use 10-digit dialing.
NCUA MDI Mentoring Grant Round Reopens Oct. 11
National Credit Union Administration (NCUA) recently announced that federally insured credit unions with both the minority depository institution and low-income designations are eligible to apply for the National Credit Union Administration’s MDI mentoring grants between Oct. 11 and Oct. 29.
This grant round will provide approximately $100,000 to low-income credit unions with the MDI designation to support mentoring relationships that allow larger, experienced credit unions the opportunity to provide guidance to other MDIs.
Grant requirements, application instructions and other details can all be found on the NCUA’s Grant Page. Credit unions with other questions about these grants may contact the NCUA’s Office of Credit Union Resources and Expansion at CUREAPPS@ncua.gov
NCUA Request for Information – Due Monday, September 27
The National Credit Union Administration’s (NCUA) has an open request for information and comment regarding digital assets and related technologies. This Request for Information and Comment can be found here - AG20210722Item1b.pdf (ncua.gov). Comments must be received by Monday, September 27.
The NCUA hopes to learn how the credit union community is using Decentralized Finance (DeFi) and Distributed Ledger Technology (DLT) technologies and gain additional feedback as to the role the NCUA can play in safeguarding the financial system and consumers in the context of these emerging technologies. The NCUA stresses that “the request for information does not speak to the permissibility or impermissibility of any specific activity.” Further, this request for information does not modify any existing requirements applicable to FICUs and does not grant FICUs any new authorities or limit any existing authorities.
Decentralized Finance (DeFi) is the broad category of applications adopting peer-to-peer networks, Distributed Ledger Technology (DLT), and related uses, such as smart contracts, to create digital assets like cryptocurrency and crypto-assets, clearing and settlement systems, identity management systems, and record retention systems.
Questions posed by the NCUA range from usage and marketplace to operational considerations. The NCUA also solicits feedback on risk and compliance management issues along with supervision and activities. Finally, the NCUA seeks feedback on share insurance and resolution concerns.
Some of the questions for which the NCUA is seeking information include:
How are those in the credit union system currently using or planning to use DLT and DeFi applications?
In terms of the marketplace, where do those in the credit union system see the greatest demand for DeFi application services, and who are the largest drivers for such services?
What are the advantages and disadvantages of FICUs developing DLT and DeFi projects through third-party relationships versus through a credit union service organization (CUSO)?
What unique or specific risks are challenging to measure, monitor, and control for various DLT and DeFi applications? What unique controls or processes are or could be implemented to address such risks?
Are there any unique aspects the NCUA should consider from a supervisory perspective?
Are there any areas in which the NCUA should clarify or expand existing supervisory guidance to address these activities?
Are there any steps the NCUA should consider to ensure FICU members can distinguish between uninsured digital asset products and insured shares?
FREE Webinar: Money Laundering from Environmental Crime
The Financial Action Task Force has announced it will conduct a webinar on Money Laundering from Environmental Crime on September 30, 2021 from 7:00–8:00 a.m. EDT. An international panel will discuss important aspects of the FATF Report on the topic, including how to identify red-flag information to help detect and trace the illicit finances of criminals engaged in environmental crimes. Participants will also debate how to overcome challenges, such as the lack of governmental or institutional prioritization, limited awareness and data, de-risking, and limited domestic and international co-ordination. Online registration is open.
As always, DakCU members may contact amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.