ICYMI: Lawmakers, Policy Experts Agree the Bank Secrecy Act Must be Modernized to Meet Demands of  the Today’s Financial System

“Congress and the Trump administration should launch a new era of clear, consistent, and risk-based oversight that supports both fairness and security.”

The push to modernize the Bank Secrecy Act (BSA) and anti-money laundering (AML) framework recently took center stage during a U.S. House Financial Services Subcommittee hearing titled “Modernizing the BSA for Financial Crime in the 21st Century,” where lawmakers and witnesses examined growing concerns surrounding Suspicious Activity Reports (SARs), Currency Transaction Reports (CTRs), outdated reporting thresholds that have failed to keep pace with inflation and the role artificial intelligence and emerging technologies could play in improving compliance systems.

The Bank Secrecy Act is Not Prepared for the Modern System

Lawmakers and witnesses argued the current system encourages excessive reporting and defensive compliance practices rather than producing meaningful intelligence for law enforcement. Concerns were also raised about rising compliance costs for financial institutions as well as broader implications for consumer privacy, financial access and innovation within the financial services industry.

U.S. Representative Warren Davidson (R-OH) argued the law “has drifted far beyond its original intent and now operates as a broad surveillance tool that places heavy compliance burdens on financial institutions while offering limited value to law enforcement.” Davidson also warned that defensive filings create unnecessary “noise” that undermines law enforcement’s ability to identify genuine criminal activity.

Outdated Reporting Thresholds Cloud Real Financial Crimes

Much of the discussion centered on outdated reporting thresholds and the role artificial intelligence could play in modernizing compliance systems. U.S. Representative Andy Barr (R-KY) argued Congress should update CTR and SAR thresholds to account for inflation and create “a new supervisory architecture that rewards institutions that adopt AI and other technological tools” capable of identifying illicit activity more effectively than today’s “box-checking” compliance model.

Costly Compliance, Minimal Results

Witnesses echoed many of those concerns. Nicholas Anthony of the Cato Institute criticized the scale and cost of the current system, noting financial institutions spend an estimated $59 billion annually complying with the BSA while filing millions of reports that generate relatively few investigative leads. John Court of the Bank Policy Institute argued that “banks are effectively deputized as frontline AML enforcers and face severe penalties for compliance missteps, which encourages defensive overreporting and conservative de-risking rather than smarter, true risk-focused approaches.”

Return to the Bank Secrecy Act’s Original Intent

The debate has also expanded beyond Capitol Hill. Americans for Free Markets (AFFM) Executive Director David Ibsen recently authored an op-ed in the Washington Examiner arguing the BSA has strayed far from its original purpose of combating issues like tax evasion and money laundering. Ibsen contended outdated reporting thresholds and vague definitions surrounding suspicious activity have contributed to excessive reporting requirements that overwhelm regulators, obscure illicit activity and enable politically motivated debanking.

Ibsen argued that “These dated thresholds and the ambiguity behind what constitutes “suspicious activity” create unnecessary noise, clouding truly suspicious activity and leading to unnecessary account closures or disruptions to operations.”

Constructive Progress

Ibsen praised lawmakers for beginning to seriously examine reforms to the BSA framework while emphasizing future changes should prioritize a more targeted and risk-based approach to compliance. He also pointed to the STREAMLINE Act introduced by U.S. Senator Tim Scott (R-SC) as a potential starting point for broader modernization efforts.

Taken together, the hearing and broader policy discussion reflect growing bipartisan recognition that the BSA framework must better target illicit activity while reducing unnecessary compliance burdens and keeping pace with modern financial realities.

Watch the full hearing HERE. Read David Ibsen’s full piece in the Washington Examiner HERE.