All over the world, there are stringent laws that require banks to implement measures against money laundering. In the US, banks implement these measures through the Bank Secrecy Act(BSA)/Anti-Money Laundering Act (AML).
Since its enforcement in the 1970s, the BSA/AML has undergone several developments by government and regulatory bodies. However, the popular five pillars of the BSL/AML compliance programme are still consistent with these regulatory changes, making it less complicated to formulate a robust BSL/AML compliance programme for your bank.
As a financial institution, you should consistently implement the five pillars of the BSL/AML compliance programme to maintain adequate controls that will help prevent, detect, and report money laundering activities in record time (not after a court charge or a hefty fine).
In this blog post, we’ll explore how your bank can effectively implement a BSA/AML compliance program and ensure that it meets regulatory requirements. We’ll relate this to the five pillars of a BSA/AML compliance program. Hence, you know what you need to keep your organization compliant with federal regulations on anti-money laundering efforts.
Pillar 1: Internal Controls
Internal controls are the policies that a bank must maintain to ensure that transactions are appropriately authorized, recorded and reported. Doing these ultimately help your bank achieve its objectives and ensure compliance with laws and regulations.
Banks should establish internal controls at the onset of the BSA/AML compliance program, and each measure should be regularly reviewed as part of the bank’s ongoing risk assessment process. These controls can include:
- A customer identification program (CIP)
- A transaction monitoring system (TMS)
- An effective compliance culture
The internal controls in a bank must include tools for employee background checks, internal auditing of transactions, risk assessment systems and other procedures as deemed fit. Although these may seem like basic steps for any business, banks have to go above and beyond when it comes to this pillar because of the higher risk of money laundering. You need to ensure that there are no weak points in your system where criminals can slip through undetected.
Pillar 2: AML Officer
The second pillar is the AML Officer. The AML Officer is in charge of your bank’s BSA/AML compliance program. They are responsible for implementing a comprehensive and effective program that will help you stay in compliance with regulations. For one thing, the AML Officer must be aware of all aspects of the BSA/AML compliance program. They should have adequate information about:
- What kind of records are required by law
- How do those requirements apply to each type of customer account
- Which reports need to be filed with regulators
The AML Officer oversees all aspects of the compliance program, including developing policies and procedures, training employees and conducting risk assessments. The AML Officer should be able to dive into any part of a BSA/AML compliance program, whether reviewing suspicious activity or performing a risk assessment on your banking activities. The position also requires experience working with other financial institutions and regulatory bodies to understand how anti-money laundering laws work within different systems.
In addition, more than one person can fulfil the role of an AML Officer within a bank. Nevertheless, it’s essential to understand that the people in charge must be competent to oversee all aspects of a bank’s BSA/AML compliance responsibilities.
If you need help finding someone qualified for this role, look no further than our team of BSA/AML compliance consulting professionals at RADD LLC. We can help by providing resources such as industry knowledge and access to experts who specialize in all aspects of BSA/AML compliance programs.
Pillar 3: Training
Training bank staff is essential to the success of a BSA/AML compliance program. Training should be ongoing and tailored to the needs of staff and their responsibilities within the bank. For example, senior executives may require more extensive training than tellers or customer service representatives. This is because they have access to a lot of sensitive information that could lead them to commit fraud if they are not properly trained in identifying suspicious activity.
It is also vital that the training is provided by qualified experts, including compliance officers and third-party vendors. Finally, it’s crucial that all training is documented so that it’s easy for management to track who has completed what training and when they have been updated with any new information or policy changes.
Pillar 4: Independent Review
Independent review is important to any bank’s BSA/AML compliance program. An independent review is done by an external party to ensure that a bank follows the guidelines set forth by the BSA/AML and implements its regulations and other related laws.
An independent review can help you identify issues with your existing program, including weaknesses in the internal controls that could result in non-compliance with BSA/AML regulations.
Independent review is usually done in conjunction with another regulatory agency such as FinCEN or OCC, which conducts an annual examination throughout the bank’s enterprise based on risk assessment considerations.
Another common type of independent review that banks use is an “on-site audit”. It is a process where the auditor comes into the bank for a period of time and goes through his or her checklist with employees of the bank to ensure compliance with the anti-money laundering laws.
Pillar 5: Customer Due Diligence
The fifth pillar of BSA/AML compliance is customer due diligence. Under Pillar 5, banks must identify their customers and understand the nature of their business and risk profile. You must also clearly understand each customer’s transactions, reputation, and source of wealth (if any). By doing so, you can more effectively identify customer suspicious activity and ensure that you are not providing financial services to a criminal or terrorist organization.
If a customer is providing any information, the bank must verify the information using official records and databases such as passports, utility bills, driver’s licenses etc. It is also important to focus on identifying high-risk customers using an automated risk scoring tool to examine customers’ account data against transaction data over time.
Implementing all the pillars in your BSA/AML compliance program is important. You should ensure that you have the right people, processes and technology to monitor transactions effectively and detect suspicious activity. If you are only focusing on one or two pillars, there will be holes in your compliance program that criminals can easily exploit.
Money laundering techniques are becoming more sophisticated, and it is important to have a comprehensive BSL/AML compliance program in place. At RADD LLC, we can help you detect suspicious transactions and play a critical role in complying with regulations and preventing money laundering.
To build a robust BSA/AML program, contact our consultants at RADD LLC. They will bring over 30 years of experience in various areas, including regulatory compliance and internal auditing for financial institutions.