Understanding NY DFS Rule 504

by Brandi Reynolds, Managing Director

Are you a regulated financial institution that operates in New York? If so, it is important to familiarize yourself with the New York State's Department of Financial Services (DFS) Rule 504. The rule was put into place in 2017 and requires companies to establish anti-money laundering (AML) programs that meet the DFS’s specific and strict requirements, and to certify compliance with the regulation annually to the DFS.

What Is NY DFS Rule 504?

The purpose of DFS Rule 504 is to prevent money-laundering activities from occurring within the state of New York. It requires businesses that operate in the state to have AML policies and procedures in place. This includes having designated personnel responsible for implementing these policies, as well as training employees on how to identify suspicious activities and report them accordingly. Additionally, businesses must have systems in place to monitor transactions and track customer information.

The rule also requires businesses to perform customer due diligence (CDD) when onboarding new customers or clients. This involves collecting certain pieces of information about the customer, such as name, address, date of birth, and other identifying information. The purpose of CDD is to verify that the customer is who they say they are, as well as ensure that they are not engaging in any illegal activities or being used by another party for criminal purposes. Businesses must also perform ongoing monitoring of their customers' accounts to ensure that nothing suspicious is taking place. This monitoring must be continuously tested, tuned, and refined to meet the business’s risks. Finally, businesses must maintain records of all transactions so that they can be reviewed periodically for compliance with DFS Rule 504 regulations.

Why Is It Important To Comply With DFS Rule 504?

It is important for businesses operating in New York State to comply with DFS Rule 504 because failure to do so could result in serious penalties or even revocation of their license. Non-compliance could lead to fines or other disciplinary action taken against the business by the regulator responsible for overseeing their operations.  Regulated Institutions should submit the required certification covering the prior calendar year by April 15 of each year via the DFS Portal.

Conclusion

NY DFS Rule 504 is an important set of regulations designed to protect consumers from money laundering activities. It requires businesses operating within the state to have anti-money laundering programs in place and mandates certain procedures such as customer due diligence and ongoing account monitoring be performed regularly by these businesses. Failing to comply with these regulations could result in serious penalties or even revocation of a business’s license or permit which could damage its reputation and put it at risk for civil litigation if customers believe their data was not properly secured or protected from misuse or theft due to lack of compliance with these regulations. For this reason, it is essential that businesses operating within New York understand and comply with NY DFS Rule 504 requirements annually if they want to remain compliant and protect themselves from potential legal action or financial penalties down the road.

Bates Group's consultants have had proven success in helping regulated financial institutions comply with NY DFS 504 requirements. We have decades of experience, making us uniquely qualified to help your institution meet these requirements quickly and efficiently. Our team will work closely with you to understand your business needs and create an audit plan that is tailored specifically for you. We will then conduct a comprehensive review and assess the effectiveness of your compliance program. Contact us today to learn more!

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