On December 3, 2018, 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 Financial Crimes Enforcement Network (“FinCEN”), (collectively, the “Agencies”) issued a joint statement (“Joint Statement”) urging banks to consider, evaluate and potentially implement innovative approaches to meet the Bank Secrecy Act/anti-money laundering (“BSA/AML”) compliance obligations of banks.
The Joint Statement highlights the Agencies’ belief that private sector innovation can strengthen banks’ BSA/AML compliance programs in the areas of risk identification, transaction monitoring, and suspicious activity reporting, thereby better assisting banks in identifying and reporting suspected money laundering, terrorist financing, and other illicit activity.
Examples of innovative approaches mentioned in the Joint Statement include experimenting with artificial intelligence and digital identity technologies and developing internal financial intelligence units dedicated to identifying complex illicit financial activity. Banks are encouraged to consider pilot programs as a way to test potential innovative approaches to BSA/AML compliance. The Agencies assure banks that while they may provide feedback on a pilot program, the fact that a particular pilot program ultimately proves unsuccessful should not in and of itself result in supervisory criticism, nor would detection of gaps in a bank’s compliance program as a result of the pilot program necessarily automatically lead to a supervisory enforcement action.
The Agencies themselves are exploring internal methods to work with banks to encourage innovative efforts and have or will be setting up projects or offices to support those efforts. FinCEN also will be doing outreach to the banking industry and their service providers to discuss implications of proposed innovations in their products and services. The Agencies also welcome industry’s feedback on how they can best support innovative efforts to combat illicit financial activity.
While exploring new approaches to BSA/AML compliance, banks must continue to strengthen existing programs and comply with BSA/AML requirements. As such, when developing pilot programs and other innovative approaches, bank management should carefully evaluate whether, and at what point, they may be deemed sufficiently developed to be added to existing BSA/AML processes. At the same time, the Agencies note that pursuing innovation is not mandatory and that they will not penalize or criticize banks that already have effective BSA/AML compliance programs but choose not to consider innovative approaches at this time.
*Special thanks to Jackie Kim for her assistance in preparing this post.