Fulfilling today’s requirements for anti-money laundering and counterterrorism financing/sanctions compliance is no easy task for financial institutions.
Even as regulators’ awareness of the burden posed by anti-money laundering (AML) and counterterrorism financing (CTF)/sanctions compliance grows, financial institutions must remain diligent, stay open to advances in combating financial crimes, and look for ways to make improvements on their own.
Positive dialogue has occurred between financial institutions and regulators. Recently, the U.S. Congress held hearings in which lawmakers acknowledged that many financial institutions face challenges in meeting Bank Secrecy Act (BSA) and PATRIOT Act obligations with limited resources. Congress also recognized the need to revisit and examine decades-old BSA/AML requirements to “sharpen the focus, sustainability and enforcement of a modernized, more efficient U.S. counter-threat-finance architecture.” There was even talk of possible adjustment of certain requirements to make compliance easier and the AML/CTF system more efficient, such as revisiting the current suspicious activity reporting (SAR) and currency transaction report (CTR) filing requirements. However, these discussions have yet to produce tangible change.
While they wait for relief, financial institutions must continue to comply with current rules both in the United States and abroad and adapt to new and more stringent BSA/AML requirements imposed by regulatory bodies and national and local governments. For example, Congress is taking steps to further strengthen the current AML system with the proposed Corporate Transparency Act of 2017, which, if approved, would effectively end the formation of shell companies with anonymous ownership in the United States.
Additional examples include the New York Department of Financial Services’ Part 504 rule, effective 1 January 2017, which requires financial institutions to maintain a reasonably designed transaction monitoring and watch-list filtering program and their boards of directors to certify compliance annually starting in April 2018; and the Financial Crimes Enforcement Network (FinCEN) final rule on customer due diligence (CDD), which requires financial institutions to identify and verify beneficial ownership of legal entity customers. Covered financial institutions must comply with the new rule by 11 May 2018. Meeting these more rigorous demands requires a considerable financial commitment by institutions and their compliance divisions.
In the face of this evolving regulatory landscape, financial institutions must balance an array of competing priorities in order to stay on top of constant change while maintaining effective AML and sanctions compliance programs capable of withstanding regulatory scrutiny. An ideal compliance program is risk-based, taking into consideration all risk exposures and attributes through a comprehensive risk assessment process and demonstrating effective interpretation of those risks through the design and implementation of a sustainable internal control framework to mitigate such risks.
Financial institutions should strive for that are suited to their risk appetite and emphasize a strong control environment that supports business growth. K2 Intelligence works with clients to build these types of sustainable programs—programs that foster a culture of compliance, withstand regulatory scrutiny, and achieve the much-needed balancing of priorities.
It is clear that AML/CTF rules underscore the importance of the global financial system in mitigating financial crime risks. Financial institutions, both large and small, are and will remain on the front lines. Therefore, they must remain diligent in their commitment to compliance and to building scalable, efficient processes capable of weathering the ambiguous nature of the global regulatory environment.