MVA White Collar Defense, Investigations, and Regulatory Advice Blog

By Barbara Meeks and Kristina Whittaker. Last month the Financial Crimes Enforcement Network (FinCEN) and the federal bank regulators issued a Joint Statement aimed at improving transparency into their risk-focused examination and supervision of banks’ compliance with Bank Secrecy Act/Anti-money Laundering (BSA/AML) requirements. 

The statement outlines common supervisory practices for assessing a bank’s BSA/AML risk profile, scope and planning of examinations and evaluating the adequacy of BSA/AML compliance programs.  The risk-focused approach enables federal agencies to better tailor examination plans and procedures based on the unique risk profile of each bank.  The statement does not establish new requirements.  Interestingly, though, the agencies reiterate that banks 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.  Since Operation Chokepoint, banks have spent billions of dollars to enhance their BSA/AML programs, including satisfying enhanced due diligence requirements for customers in various high risk industries.  The practical reality for many banks is that the additional burden, intense scrutiny, and potential for reputation risk simply may not be justified for customers in certain industries.  So banks will likely continue to wrestle with various competing principles as they re-evaluate customer risks and relationships through their BSA/AML programs.    

The joint statement sets forth common practices used by the federal agencies for assessing a bank’s risk profile, including:

• Leveraging available information including the bank’s BSA/AML risk assessment.
• Independent testing or audit conclusions.
• Reviewing analyses and conclusions from prior examinations.
• Contacts with the bank between examinations.
• Considering the bank’s ability to identify, measure, monitor and control risks.

This information helps examiners plan and scope the examination, as well as initially evaluate the adequacy of the compliance program. Using this approach, the agencies are able to allocate more resources to higher-risk areas, and fewer resources to lower-risk areas.

The statement was developed by a working group aimed at improving the effectiveness and efficiency of the BSA/AML regime. Members include the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and FinCEN.  The risk-focused approach reflected in the statement is consistent with information, instructions and procedures communicated to examiners in prior issuances.  While the Joint Statement is directed toward banks, other financial institutions subject to BSA/AML regulations (e.g. insurance companies, broker-dealers), may want to familiarize themselves with it, in case their regulators decide to take a similar approach.