4 Key Takeaways from FIBA’s ‘Ask the Regulators’ Panel

More than 1,400 banking professionals from around the world met in Miami on February 20-21, 2014, for the 14^th annual Florida International Bankers Association (FIBA) Anti Money Laundering (AML) Compliance Conference.  Each year the conference includes an “Ask the U.S. Regulators and Policy Makers” panel, where representatives from each regulatory body discuss the status of the AML compliance environment.

Here are four takeaways from this year’s regulators panel:

1.       Customer risk rating and due diligence

The frequency and method of customer risk rating for financial institutions was a hot topic with the panel. Financial institutions should be able to distinguish a high-risk customer from a moderate customer.  Having a complete picture of their customers helps financial institutions to minimize risk and align AML monitoring with each individual’s money laundering risk. By obtaining financial statements, banking references, occupation, source of future deposits and explanations for changes in account activity patterns, the financial institution can determine whether a customer’s activity is consistent with his or her profile. They can also use this information to determine if fluctuation from the profile will affect the risk rating of each customer in the future.

2.       Alert management and model validation

Is the financial institution’s monitoring parameters and thresholds optimized based on the AML risk assessment of the financial institution?  Financial institutions should have documentation that supports their method for establishing thresholds and parameters in the AML monitoring system.  This documentation should include why the financial institution used one threshold over another (i.e., why x is better than y).  According to the regulatory panel, independent third parties should be validating the process every 12-18 months. The Office of the Comptroller of the Currency has issued Supervisory Guidance on Model Risk Management which includes recommendations for model development and validation.

3.       Financial institution and consultant relationship

The regulator panel stressed the importance of the financial institution/consultant relationship during a regulatory enforcement action project.  The consultant and the financial institution should agree on the procedures and the reporting process.  The panel suggested that financial institutions should designate a representative as the liaison between the consultant and the institution that tracks progress and reports any delays or missed deadlines to the financial institution.  As soon as the financial institution is aware of any delays or potential missed deadlines, they should contact the regulators.  As these projects can be very expensive for the financial institution, delays or missed deadlines will increase the cost of successfully complying with regulatory enforcement action.

4.       Cryptocurrency

Cryptocurrency is the new buzzword, and payment systems like Bitcoin are becoming increasingly popular in the United States.  Although commercial use of the currency is limited, businesses like Overstock.com are beginning to accept Bitcoin. In order to popularize the use of cryptocurrency among banks and financial institutions, methods of regulating and registering the currency for security and tracking purposes will need to be developed. The future of Bitcoin is still up in the air, especially with the Mt. Gox meltdown just last week, but volatility, black market activity, theft, anonymity and money laundering remain significant issues with cryptocurrency.

Banking professionals should stay informed about the how these emerging trends might affect their institutions in the months to come. If you have questions about AML compliance or other banking-related regulatory issues, please contact me or another member of our risk advisory services team.