As the year has progressed and a new federal administration has set in, it might be easy to assume that the regulatory environment for financial institutions may soon be relaxed. The CFPB has seen a huge reduction in force and has rescinded much of its published guidance. The FFIEC has announced that the small business data collection rule and the financial data rights rules have been published, but the implementation has been delayed. Overall, it would appear that increased staffing at federal agencies that oversee financial institutions is unlikely for some time.
Based upon these signs, now might be a good time to reduce or at least slow expenditure on compliance. For money service businesses and the banks that service the industry, nothing could be further from the truth.
In many cases, state regulators have stepped in where the federal regulators may have stepped back. For several years, the Conference of State Bank Supervisors have worked to gain countrywide approval of a set of regulatory standards that would be universally applied. The Money Transmission Modernization Act (“MTMA”) has been adopted by over 30 states and more are considering acceptance. The MTMA allows for a stronger ability of states to engage in joint examinations and joint enforcement actions.
In January 2025 for example, a coordinated effort of 48 states resulted in an $80 million fine and an enforcement action against Block Inc. (“CashApp”).
In addition to the joint actions of state regulators, one must also consider the impact of the federal government’s push for mass deportations.
Despite its broader deregulatory agenda, the Trump administration has made clear that financial crime regulations — particularly those targeting money laundering, sanctions compliance, and illicit financing — are exceptions to its broader policy shift. The administration’s intensified crackdown on drug cartels underscores the financial sector’s growing role in national security and foreign policy enforcement. Banks and regulated institutions operating along the U.S.-Mexico border, or with substantial exposure to Mexico and Central America, must prepare for heightened compliance and due diligence expectations.[1]
There has already been a push to reduce incentives for remittances, include a recent geographic targeting order (‘GTO”) that reduce the threshold for currency reporting from $10,000 to $200 for money service businesses operating in 30 zip codes in California and Texas.
Moreover, in both California and Texas, enforcement activity by state regulators continues to increase. Findings and violations that once may have resulted in a strongly worded examination cover page are now becoming enforcement actions. Failure to timely file required reports, poorly documented training and incomplete documentation of administration of agents are just a few examples.
Now is the time to review the overall effectiveness of the current compliance systems in place. The internal review should consider all aspects of the program including risk assessments, training administration and most important- documentation of the program.
***James DeFrantz is Principal at Virtual Compliance Management. For More information please visit our website at www.vcm4you.com ***
[1] How the Trump Administration’s War on Cartels Will Reshape the Financial Sector- By Jonathan “Jack” Harrington, Leah M. Campbell, Gabriella E. Alonso & John Thomas Mostellar III