INSIGHTS for Financial Institutions Winter 2015 | Page 8
An AML program will help support compliance with regulations to prevent large
fines, expensive legal battles and PR damage that can have a long-lasting effect on the
organization.
Top 5 Reasons BSA/AML Programs Fail
and How to Ensure Yours Doesn’t
Banks of all sizes were levied with high fines over
the past few years due to non-compliance with
anti-money laundering requirements resulting
in increased supervisory attention on BSA/AML
regulations by federal banking agencies.
The most common reasons AML programs
are ineffective or fail, resulting in regulatory
penalties, include:
1. Lack of understanding of how modern
technologies and payment systems influence
Customer Due Diligence (CDD) and Enhanced
Due Diligence (EDD) procedures – Often,
programs are designed to have due diligence
procedures at the establishment of the
customer relationship, but fail to provide
adequate monitoring of this relationship after
the initial client contact. New technologies
have changed how customers open accounts
and make transactions, but customer due
diligence procedures have not always kept up
with the demand for faster and more mobile
transactions.
Money laundering and terrorist financing
undermine the integrity and stability of financial
institutions and systems. They lead to slower
economic growth by reducing productivity in
the economy’s real sector, diverting resources
and encouraging crime and corruption. Having
an effective anti-money laundering program in
place will provide comfort to your customers in
a challenging environment. Equally important,
an AML program will help support compliance
with regulations to prevent large fines, expensive
legal battles and PR damage that can have a
long-lasting effect on the organization.
2. Inadequate suspicious activity identification
and reporting – Financial institutions struggle to
file SARs on a timely basis due to insufficient
record-keeping and filing processes, lack of
employee training and oversight, or insufficient
systems that do not allow suspicious activity to
be identified easily.
A robust BSA/AML program tailored to the
financial institution’s risk profile, and paired with
effective governance and oversight, can detect
red flags and suspicious activities and avoid the
penalties that come with non-compliance.
INSIGHTS for Financial Institutions
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3. Inadequate assessment of customer
risk exposure – Banks often underestimate
the importance of adequately assessing risk
exposure for their customer base from the
opening of accounts to transaction activities
periodically thereafter. This results in insufficient
risk assessments and lack of customer risk
profiles.
laundering practices. Financial institutions
should identify the areas that require system
support and perform a cost-benefit study to
identify the best system on the market for their
risk profile. At the same time, just using the rules
as provided by a vendor without independently
validating them can result in not all suspicious
transaction or red flags being identified. Rule
validation should be a significant part of ongoing
monitoring of systems and practices.
4. Lack of adequate employee training –
Employee training – one of the key pillars of
any robust BSA/AML program – is designed
to help employees identify red flags and
suspicious activities and be knowledgeable
about the appropriate reporting mechanism.
When employees are not familiar with the
organization’s BSA/AML program and policies,
as well as regulatory requirements, they might
not understand the significance of compliance.
This can result in suspicious transactions and
activities by customers not being identified.
Discover four more strategies to avoid
AML compliance issues and enhance the
effectiveness of your AML program at
bswllc.com/BSA_AML
5. Inadequate system support – Institutions
sometimes struggle to find the right BSA/
AML compliance systems that are also cost
effective. Due to budget constraints, institutions
often use inappropriate systems for their risk
profile and number of customers and customer
transactions. The failure to merely “adopt” a
system and rely on the third-party vendor to
have appropriate rules are additional mistakes
too many organizations have made.
Perform Rule Validation to Avoid AML
Compliance Issues
Sound monitoring systems are essential to
assist in the detection and prevention of money
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