Worcester Business Journal

wbjournal.com | November 8, 2021 | Worcester Business Journal 21 B A N K I N G & F I N A N C E F O C U S Regulation defeated Aer an outcry locally and nationally, the banking industry got the federal government to scrap an effort to monitor more financial transactions The unbanked population The percent of U.S. households without a bank account has been steadily falling over the last decade. Source: Federal Deposit Insurance Corp. 0 2% 4% 6% 8% 10% 2009 '11 '13 '15 '17 '19 7.6% 5.4% Portion of U.S. households that are unbanked BY SLOANE M. PERRON WBJ Staff Writer W hen President Joe Biden's administration dropped a planned $600 reporting requirement on bank account transactions, financial institutions across Central Massachusetts and the nation breathed a collective sigh of relief. Not only were banks and credit unions concerned about the amount of work that would go into tracking and reporting the originally proposed $600 rule and then its later modified $10,000 successor, but they were worried about their customers' privacy and undoing the inroads they made to historically unbanked populations. "at kind of defeats the purpose of trying to li up the backbone of America. is suppresses that and makes it more difficult to succeed," said Ryan Foley, partner at the Worcester tax consulting firm Cunningham & Associates. e original proposal was part of the Biden Administration's effort to raise more money for its proposed federal spending programs by helping the Internal Revenue Service increase enforcement against individuals and businesses who underpay their taxes, by a combined estimated $600 billion annually. To address this tax gap, the U.S. Treasury Secretary Janet Yellen proposed requiring banks and credit unions to submit reports on account transactions consisting of at least $600 worth of financial activity, including every withdrawal, deposit, and account to account transaction made by an account holder. Aer institutions such as the American Bankers Association and the Credit Union National Association said this threshold would apply to nearly every account holder in the nation, the threshold was raised to $10,000, before ultimately being scrapped. "What is our right to privacy? We are law abiding citizens. We are reporting all of [our] taxes. We work with a tax accountant to do all of this correctly, and now somehow we are presumed to have done something wrong because of this vast data that is being submitted to the IRS," Kathleen Murphy, president and CEO of Massachusetts Bankers Association, said about the former proposed IRS threshold. Increased costs for banks Financial institutions utilize vast data to manage and protect the personal information of account holders. Firewalls and core processors, third- party operators who provide banks with these informational systems, are in place now for everyday banking needs. However, these core processing systems would have needed to be reworked in order to pull all of the account information mandated by the proposal before transmitting that information to the IRS. ese changes would have raised operating costs for banks while escalating tax preparation expenses for small businesses. Mark O'Connell, president and CEO of Avidia Bank in Hudson, which has $2 billion in assets, said banks already contend with strict reporting. O'Connell said the Banking Secrecy Act already requires financial institutions to report cash transactions of $10,000 or more to the federal government in order to prevent money laundering. During a 1996 addition to the Banking Secrecy Act, banks were further mandated to flag suspicious cash transactions, even if they were under the $10,000 limit. "e BSA monitoring we do, we do not get compensated by the government for that, and we have a department at our bank of seven people who work in our BSA department. eir work is primarily, 80% to 90% of it, is to monitor accounts for suspicious activity and report on it for the government, which is why I am somewhat confused why [the IRS] need this new information," O'Connell said. Changing the reporting requirements would have had an impact on small businesses, said Foley of Cunningham & Associates, while not necessarily deterring bad actors who don't pay their full tax obligations. "If people are doing the wrong things, they are going to keep doing the wrong things. If they are not going to report income, they will continue not to report income. e reporting requirements are only going to put a strain on folks that are compliant and good taxpayers and Ryan Foley, partner, Cunningham & Associates Mark O'Connell, CEO, Avidia Bank Continued on next page Kathleen Murphy, CEO, Massachusetts Bankers Association IMAGE/ADOBE STOCK.COM

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