A robust BSA/AML and Sanctions Program framework is crucial for banks to attain compliance with heightened regulatory requirements.
The rapidly evolving landscape poses incredible complexities from the standpoints of capabilities, due diligence, internal controls/policies, etc.
Despite varying obligations in the context of geographies and business circumstances, a few aspects remain fundamental to having an effective governance framework. The following sections outline these.
Framework for BSA/AML Program – Five Pillars of the Bank Secrecy Act (BSA)
1. Responsible Individuals: The designation of a BSA/AML Officer or responsible individual(s) who needs to independently coordinate and monitor the day-to-day compliance and applicable anti-money laundering (AML) laws and/or regulations.
2. Training: Imparting the requisite AML training to all the employees as necessary to meet the standards of due diligence
3. Independent Testing: Requirements for regular independent testing of financial institutions and affiliate vendors concerning their adherence to the BSA/AML program, procedures, and processes
4. System of Internal Controls: Internal control structure, including policies, procedures, and processes designed to limit and control AML risks and to attain compliance with applicable BSA/AML laws and/or regulations
5. Customer Due Diligence (CDD): Requirements to identify and verify the identity of customers, including the beneficial owner(s) of legal entity customers. Further, conduct ongoing due diligence on relationships having higher risks of money laundering or terrorist financing.
Framework for Sanctions Program
The framework for the Financial Institutions Sanctions Program is based on performing the following functions to ensure that the institution complies with applicable sanctions laws and/or regulations.
1. Senior Management Commitment: The BSA/AML Officer has oversight of the Sanctions Program and ensures it receives adequate resources and is fully incorporated into its daily operations. These steps are key to instilling a culture of compliance throughout the organization.
2. Risk Assessments: Annual assessment of customers, products, and services to determine potential risks of Office of Foreign Assets Control (OFAC) sanctions. These risks will inform the policies, procedures, internal controls, and training to allow effective mitigation.
3. Internal Controls: Oversight and maintenance of the financial institutions’ sanctions procedures and processes across all the products and services
4. Testing and Auditing: Requirements for regular independent testing of financial institutions and associated vendors concerning their adherence to the Sanctions Program, procedures, and processes
5. Training: Focused training programs for sanctions-screening personnel as appropriate
To summarize, the key imperatives for an effective compliance program include, designating responsibilities, securing commitment from senior management, employee training, setting up internal controls, independent testing and auditing, and rigorous risk management.