Pubdate: Tue, 23 Mar 1999 Source: Reuters Copyright: 1999 Reuters Limited. Author: Andrew Clark U.S. BANK REGULATORS DROP KNOW YOUR CUSTOMER PLAN WASHINGTON (Reuters) - U.S. banking regulators Tuesday dropped a controversial proposal that would have required banks to monitor their customers more closely to try to spot illegal activities like money-laundering. The proposed ``Know Your Customer'' rules sparked a public outcry and drew heavy fire from Congress and the banking industry, with opponents saying they would be a serious violation of personal privacy. In a joint statement, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said they had reevaluated the proposal and decided to withdraw it. ``The agencies received an unprecedented number of comments ... from the public, banking organizations, industry trade associations, and members of Congress,'' they said. ``Most of the comments reflect public concern over the privacy of information that would be collected and held by financial institutions.'' The proposal would have extended existing rules requiring banks to report suspicious transactions, making them set up systems to screen customers and monitor their accounts for unusual activity. The FDIC alone received over 225,000 comments, with the vast majority from private individuals opposed to the plan. The regulators said they remained committed to the fight against money laundering, but would seek in future to reconcile this with concerns about personal privacy. ``The agencies agree that there must be an appropriate balance between these legitimate interests,'' they said. Senior U.S. Treasury officials warned the storm of protest whipped up by the ``Know Your Customer'' issue should not be exploited to try to weaken existing money laundering controls. ``We would not want to see ... the pendulum be permitted to swing the other way so that legitimate law enforcement concerns using legitimate law enforcement tools -- that are not unduly intrusive -- are somehow abandoned,'' one official said. ``We think the current rules make sense, they have accomplished a great deal, they strike the right balance between law enforcement and privacy, and we aim to see their continued enforcement.'' Spurred by the public outcry, the Senate voted on March 5 to block the Know Your Customer rules, adding a rider to an education bill to stop the regulators from implementing them. ``I heard from more than 10,000 Texans who thought this rule was a bad idea,'' Senate Banking Committee Chairman Phil Gramm, a Texas Republican, said Tuesday. ``I'm glad to know there are regulators who will listen to real people and walk away from a bad idea.'' Bank groups had also protested the burden the plan would have imposed on them, and the American Bankers Association welcomed the decision to drop the initiative. ``The proposal would have put banks in the untenable position of invading their customers' privacy and potentially could have eroded public confidence in the banking industry,'' said ABA executive vice president Donald Ogilvie. Paul Schosberg, president of the trade group America's Community Bankers, urged the regulators not to revive the proposal in the future in any form. ``Instead, we hope the agencies will turn their attention to improving the implementation of existing laws and regulations to ... strike more effectively at illegal money laundering activities,'' he said. - --- MAP posted-by: Patrick Henry