Key Takeaways from FIBA’s ‘Ask the U.S. Regulators and Policy Makers’

The opportunity to hear about the current and future state of the AML compliance environment directly from leading U.S. policy makers and regulators at the same time in an open forum setting does not occur very often.

For this reason, attending Ask the U.S. Regulators and Policy Makers session, at the Florida International Bankers Association (FIBA) Anti-Money Laundering (AML) Compliance Conference is a must for banking industry professionals. The 2018 conference was the 18^th annual and included more than 1,500 banking professionals representing 400 financial institutions and corporations from over 42 countries from around the world.

Here are the top takeaways from this year’s regulators panel, which included representatives from FinCEN, the Federal Reserve, the OCC, the FDIC and OFAC.

Examination trends

The regulators began the session by providing insights from the past year’s examination cycle, sharing thoughts on the positives as well as the common pitfalls and potential weaknesses.

The general consensus from the panel was that “times are good again,” and overall banks are financially healthy. Furthermore, the vast majority of banks have implemented “good” BSA programs, dedicated adequate resources to BSA and adopted a culture of compliance. The regulators cited overall good risk management practices by banks, which apply a risk-based approach and demonstrate an understanding of their markets, transactions and customers.

On the other side of the coin, the regulators mentioned various scenarios which could lead to trouble for banks:

• Communication Breakdowns
  • When marketing gets ahead of compliance. Vet new initiatives with all stakeholders before launching new products/services and/or targeting new customer types. Banks should consider performing a cost-benefit analysis and confirm controls are in-place and/or implemented to effectively mitigate new AML risks.
  • Departmental silos between BSA and Fraud, Legal Process and Cyber units. Inevitably, when issues arise from cyber intrusions, frauds and subpoenas, the areas in the bank that handle these situations need incident response procedures requiring timely communication with BSA leadership. Breakdowns can lead to failing to meet BSA reporting requirements.
• Data Integrity Issues
  • From system to system. Banks rely on automated transaction monitoring software to identify unusual activity or customer relationships that poise elevated risks, as well as to screen customers and transactions for sanctioned activity. Banks need to continuously take inventory and have quality assurance mechanisms in place that confirm these systems are receiving all relevant customer accounts and transactions and are working as intended.
• Risk Assessments
  • Data dumps with no prioritization. Risk assessments are the cornerstone of a strong risk-based compliance program. The risk assessment exercise is to understand the risks posed by the bank’s customers, products/services and geographies, distribution channels and activities in relation to the risk mitigation controls it has in place. When not executed properly, the integrity of the entire AML, customer risk rating and sanction screening models are in question or lead to systems that are not properly aligned with the institution’s risk profile.

Regulatory reform

Given the current political climate, the regulators were asked to share their thoughts on deregulation in the banking space. They discussed the collaborative efforts being made towards regulatory reform, not in the form of deregulation, but in the light of effectiveness and efficiency.

Speaking in the big picture, the policy makers mentioned that there are both short- and long-term goals, and pilot projects are on the way. Workgroups made up of leaders from each regulatory body, the Bank Secrecy Act Advisory Group (BSAAG), law enforcement and public/private organizations are working together to assess whether regulations have unintended burdens to banks. The workgroups are evaluating whether the burden on banks of certain regulations is commensurate with the value of the reports to the government.

The panelists mentioned that the proposed changes will not include raising thresholds for reportable activity, but the following items are being considered:

• Applicability of streamlined suspicious activity reports (SARs) in certain cases
• Examinations tailored to the risks of banks

Any changes would require congressionally mandated proposals seeking comment from the industry. The regulatory reforms could also come in the form of official guidance.

Office of Foreign Assets Control

The OFAC panelist gave credit to the industry for being “incredibly nimble.” However, she warned that as the industry becomes more sophisticated, so do the criminals. Bad actors are still trying to find gaps in good sanction programs.

As such, OFAC informed the audience to be on the look-out for new and novel concepts in 2018, including:

• More guidance on sanctions for lending to the Venezuelan government
• Expanded sectorial sanctions
• Working in new areas for example, focusing on foreign financial institutions with U.S. dollar based programs

In closing, OFAC mentioned that banks in general do a good job with the Specially Designated Nationals (SDN) list but have work to do with managing country-based programs.

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.