On July 22, 2019, the five federal agencies tasked with the supervision, examination, and enforcement of Bank Secrecy Act (BSA) and anti-money laundering (AML) requirements for banks (the “Agencies”)1 issued a joint statement (“Statement”) clarifying their risk-based approach to the examination of banks’ BSA/AML compliance programs.
The Statement is part of the Agencies’ continuing efforts to improve transparency regarding their risk-focused approach to BSA/AML supervision and is the third statement resulting from a working group established by the U.S. Department of the Treasury’s Office of Terrorism and Financial Intelligence and the federal banking regulators aimed at improving the effectiveness and efficiency of the BSA/AML regime. The Agencies previously released the Interagency Statement on Sharing Bank Secrecy Act Resources (October 3, 2018), and the Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing (December 3, 2018).2 The Statement indicates that the working group is continuing to evaluate the effectiveness and efficiency of the BSA/AML regime, as legislative efforts to do the same are continuing in Congress.3
The Statement does not establish new requirements; however, it confirms that the Agencies are utilizing a risk-focused approach to planning and performing BSA/AML examinations. The scope of BSA/AML examinations thus varies by bank, and examination plans and procedures are tailored to the risk profile of the bank. In assessing a bank’s risk profile, examiners may use the bank’s own risk assessment, independent audits, or past examination findings, among other sources of information. Examiners may also contact banks between examinations and consider a bank’s ability to identify, measure, monitor, and control risk. This information helps examiners scope and plan for a bank’s examination as they generally allocate more resources to higher risk areas. Although not discussed in detail in the Statement, the Agencies made clear the importance of a bank’s internal audit and independent testing of the BSA/AML compliance program.
In a press release that accompanied the publication of the Statement, FinCEN Director Kenneth A. Blanco emphasized that the Agencies “recognize that not all financial institutions share the same risk profile” but that they “are working to ensure that regulators are following a common process for assessing compliance.” According to Blanco, the Statement is intended to provide greater clarity to banks and the public on the expectations of the federal banking agencies regarding BSA/AML compliance.
In addition to describing this risk-based approach to supervision, the Statement indicates that banks are discouraged from what is commonly referred to as “de-risking.” Thus, the Statement clarifies that “[b]anks that operate in compliance with applicable law, properly manage customer relationships, and effectively mitigate risks by implementing controls commensurate with those risks are neither prohibited nor discouraged from providing banking services” and that they are “encouraged to manage customer relationships and mitigate risks based on customer relationships rather than declining to provide banking services to entire categories of customers.”
1 The Agencies are the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
3 For example, the Coordinating Oversight, Upgrading and Innovating Technology and Examiner Reform (COUNTER) Act (H.R. 2514) would improve and expand domestic and international collaboration and information sharing efforts among law enforcement, governments, financial institutions, and FinCEN, address privacy concerns and whistleblower protection, encourage BSA/AML compliance innovation, and improve examiner training, among other measures. The bill underwent a markup by the House Financial Services Committee in May 2019. The Corporate Transparency Act (H.R. 2513), which was passed by the House Financial Services Committee in May 2019, would require companies to disclose their beneficial owners to FinCEN. And in June 2019, a bipartisan group of senators released a discussion draft of the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act, which would similarly require shell companies to disclose their true owners to the U.S. Department of Treasury, among other measures.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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