Achieving a Suitable Line of Defense Against Fraud and Money Laundering

How does a financial institution arm itself against fraud and money laundering?

History has shown that banks find it difficult to implement a sound Anti-Money Laundering (AML) program due to various reasons, i.e., lack of resources, minor oversight or lapses in controls such as KYC or enhanced due diligence processes, customer and third-party risks, and regulatory scrutiny.

Since the birth of the US Patriot Act, we have seen banks losing billions of dollars in fines and penalties for not implementing an effective AML program, failure to report SARs/CTRs, failure to comply with BSA record-keeping requirements or failure to implement an adequate CIP or enhanced due diligence program.

So how does a financial institution implement an effective AML program and achieve a suitable line of defense against money laundering:

• Build a strong ‘culture of compliance’. Regulators strongly recommend building a strong culture of compliance which serves as the foundation of an institution’s compliance program. Roles and responsibilities should be identified and the board of directors need to take an active stance in promoting the compliance program, creating a strong governance structure.
• Align resources. Resources must also be aligned to manage high risk factors including customers and products.
• Leverage technology. You should also incorporate technology into your processes to effectively implement your compliance program. Functional tools such as monitoring or compliance management solutions that can enhance your compliance team’s performance, speec up your processes through automation, and above all, improve accuracy of reporting KPIs or key risk indicators.
• Know your customers. Implement an effective KYC program where you have a thorough process of identifying and “knowing” your customers’regular activity and relationship with the bank.
• Assess your risks. Perhaps the most vital of all, risk assessments need to be conducted continuously to identify potential risks, current risks and how these are progressing or being managed.

 

With all that said and done, how can a bank possibly afford to bring together tools, software solutions or human resources to implement all of these key elements? This is where an in-depth risk assessment cones into play. After a thorough review of your products and customers, for example, more resources should be aligned to mitigate higher risk activities or products.

In the end, you need to know what your risks are, where your deficiencies lie, and where to line up your resources. Once you learn how to mitigate your higher risks, the easier it is to manage your resources and in turn, save money on managing your compliance program or — worst case scenario — save on potential fines or penalties due to noncompliance.

360factors offers a BSA AML Software to help you implement a sound AML program. 360factors is an enterprise Regulatory Risk and Compliance Management Software company. 360factors’platform Predict360 uses unique mapping and cognitive technologies to provide regulatory insight, predict risk and improve operational excellence, sustainability and margins.

 

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