Revisions to the FFIEC BSA/AML Examination Manual and Federal Reserve

Board BSA/AML Examination Findings and Issues

Timothy P. Leary

Senior Special AML Examiner

Board of Governors of the Federal Reserve System

Washington, DC

Overview

• Examination Manual• Examination Findings – Numbers • Examination Issues – Weaknesses• Examination Issues – Strengths• Emerging Issues

BSA/AML Examinations

• FRB continues to conduct BSA/AML examinations using the procedures in the interagency FFIEC BSA/AML Examination Manual.

• Most recent version issued April 2010.• FRB examiners began using the revised examination

procedures for examinations that commenced on May 1, 2010 or later.

• Infobase: www.ffiec.gov/bsa_aml_infobase/

Purpose of the Manual

• Promote interagency consistency• Consolidate BSA/AML regulatory

requirements in one handbook• Provide guidance on BSA/AML topics to

examiners and banks• Clearly and authoritatively communicate

regulatory expectations

History of the Manual

• Original issuance – 2005– Emphasis: “Living document”

• Two “lives” to date – 2006 and 2007• Most recent revision – 2nd Quarter 2010

– Longest time between revisions– Most extensive revisions

Revision Process

• FFIEC (Federal Banking Agencies/State Liaison Committee)

• Consultation with FinCEN and OFAC• Industry input – meetings, conferences,

BSAAG subcommittees• Examiner input

2010 FFIEC BSA/AML Examination Manual – Significant Revisions

• Streamlined and reorganized procedures for reviewing BSA/AML compliance programs;

• Created a new section on reviewing bulk currency shipments; • Redrafted and renamed Enterprise-Wide section to acknowledge the

wide variety of programs that exist and enhance specific discussion of consolidated compliance programs (now “BSA/AML Compliance Program Structures”).

• Reorganized discussion of suspicious activity monitoring and reporting; • Updated requirements for CTR exemptions; • Clarified expectations for determining the severity of regulatory

violations; • Updated discussions of recent developments in electronic banking,

Automated Clearing House transactions, prepaid cards, cover payments, and third-party processor customers.

The Numbers (1/1/2012 – 5/31/2012)

• Total BSA/AML reviews by the FRB: 377

• Total violations cited: 29 (about 7.5% of total exams)

• Total number of banks cited: 15 (about 4% of total exams)

The Numbers (1/1/2012 – 5/31/2012)

• Total Title 12 individual subpart violations: 11 (resulted in 2 program violations). • Most common Title 12 violations:

• System of internal controls. • Independent testing. • CIP.

• Total SAR rule violations: 6• Total formal BSA/AML-related enforcement

actions: 0

Examination Issues – Weaknesses

• System of Internal Controls• Customer risk ratings, identification of high-risk customers, and

periodic reviews.• RDC for foreign correspondent accounts.• SAR monitoring (calibrating filters and clearing alerts).• SAR documentation (to file or not to file).• Consolidated (firm-wide) programs.

• Mainly large, integrated firms with multi-national operations.• Effective consolidated approach to BSA/AML compliance risk

management (disparate operations, entities, product lines).• Importance of adequate policies and procedures, clear reporting lines,

and active vendor management.

• Mergers and acquisitions (systems, data feeds, structures).

Examination Issues – Weaknesses (cont.)

• Wholesale cash operations.• Staff performance – turnover, new BSA officers,

resource issues.• New product or market development does not

adequately consider compliance issues and involve compliance personnel – the earlier the better (e.g., RDC, ACH, remittances).

• Independent testing – outsourcing, depth and breadth, considers factors set out in the Manual.

Examination Issues – Strengths

• Systems largely in place for traditional, retail-oriented banking operations.

• Overall quality of programs has stabilized.• Fewer or consistent number of overall violations.• Fewer or consistent number of serious violations.• Fewer enforcement actions.

• Risk assessments more formalized and useful – sometimes even automated (notable exceptions – see risk rating weaknesses).

Examination Issues – Strengths (cont.)

• Improved awareness that U.S. standards apply to U.S. operations.

• Improved management focus since the crisis on importance of BSA/AML compliance.

• Greater focus on higher-risk operations and customers.• Correspondent banking. • Private banking.• Politically exposed persons.

Emerging Issues

• Beneficial ownership/Customer due diligence.• FinCEN ANPRM.

• IT Modernization.• New CTR and SAR forms (March 2013).• Mandatory e-filing (June 2012).

• Iranian sanctions• CISADA – “aggressive” implementation.• Section 311 designation – Central Bank of Iran.• National Defense Authorization Act.

• Revisions to FATF recommendations (40+9).

Contact information

Timothy P. Leary

Senior Special AML Examiner

Banking Supervision and Regulation

Board of Governors of the Federal Reserve System

Washington, DC

(202) 452-2428

Timothy.P.Leary@frb.gov

Thank You!Questions?