Although there are political signals that our current administration will provide financial institutions regulatory enforcement relief in comparison to years prior, this is not the case. As evidenced by the consistent penalties enforced over the past several years, AML/BSA regulatory enforcement remains a top priority. Examples include:
- Severe civil monetary penalties now being issued to mid-size and small financial institutions
- Jurisdictions imposing mandatory certification programs for compliance personnel
- Compliance violations resulting in civil prosecution and debarment for compliance executives
Customer Due Diligence
Recent guidance and regulation around ongoing Customer Due Diligence suggests that the typical periodic annual/semi-annual client review or static review process may be insufficient to properly assess customer risk. Examination findings and fines indicate that regulators are requesting institutions adopt a process in which the client risk rating is coordinated with transaction monitoring data. Although this approach can be implemented manually (likely in smaller organizations), the most effective way to meet these evolving expectations would be to implement automated/fully integrated transaction monitoring and client risk rating applications.
Transaction Monitoring and Systems Validation
The need to validate transaction monitoring and OFAC/sanction systems remains a common theme in AML enforcement actions (i.e., Model Validation). It is imperative that senior management be involved in the process of periodically reviewing overall adequacy to ensure the systems are effective, comprehensive and that the AML risks are commensurate with the financial institution. Failures from a technology perspective to keep monitoring systems and OFAC/sanctions interdiction software up to date and independently validated lead to increased risk of not detecting potentially suspicious activity and/or conducting business with nefarious parties globally sanctioned.
Having a fundamentally sound AML/BSA program and building a strong control environment (by engaging audit, business lines, senior leadership and regulators in your risk assessment process) around the following risk areas appear to be the most effective way to minimize regulatory scrutiny:
- Correspondent Banking
- Cash (*bulk cash)
- Private Banking (*bearer shares, trusts, PICS, etc.)
- Embassy/PEP Banking (*corruption)
- Non-Banking Financial Institutions (*MSB’s, payment processors, check cashing, etc.)
- Non-Transparent Entities OFAC/Economic Sanctions (*stripping information from payments to avoid filters/reporting)
Model validation and independent testing of your AML/BSA program by a team of subject matter experts that focus on all applicable regulatory requirements, current guidance/best practices and understand regulator expectations from working with other financial institutions of similar size/products are also a good way to ensure your organization is up to speed with current risk environments and regulatory developments.
- 5 Key Challenges When Tuning AML Transaction Monitoring Software
- Six Steps to Analyzing an AML Program’s Efficiency and Effectiveness
- Nine Reasons Why AML Transaction Monitoring Analytics are Essential
- Risk-Based Transaction Monitoring Through Analytical Segmentation
- OCC AML Priority to Target Regulatory Change