Navigating the impact of recent regulatory changes in the BSA/AML/OFAC landscape

ARTICLE | September 15, 2023

Authored by RSM US LLP

Regulatory agencies have been busy in 2023 releasing joint statements with interpretive guidance focused on managing the risks associated with alternative banking. The guidance is far-reaching and affects the pillars of an institution’s program to comply with Bank Secrecy Act, anti-money laundering, and Office of Foreign Assets Control (BSA/AML/OFAC) requirements.

What you need to know

Onboarding of nontraditional bank customers, products and services heightens risk within your environment, and regulatory agencies are focused on these emerging risks. This increased scrutiny is demonstrated through the regular issuance of  sanctions, fines, and cease and desist orders.

Enhanced due diligence (EDD) requirements for onboarding new customers, products and services are not going away anytime soon. A heightened focus on know your customer (KYC), know your customer’s customer (KYCC) and know your transaction (KYT) guidelines continue to be key themes.

Practical application of new guidelines

Are you thinking about banking a new, higher-risk customer type or branching out into a new product/service offering or partner relationship? If so, safety and soundness are critical components of your institution’s risk management function. Some considerations include:

• Evaluate your current risk assessment approach and update your risk appetite statement.
• Assess management’s tolerance levels for liquidity risk and increased exposure to regulatory scrutiny.
• Define your customer types, products and services at a granular level.
• Assess the impact on the current BSA/AML/OFAC program, including the need to update policies, procedures and business operation documents.
• Evaluate and update your existing customer risk rating methodology.
• Assess the ability of your existing AML transaction monitoring technology to handle onboarding of the new customer type, partner arrangement, product or service.
• Obtain formal approval from senior management and the board.

Incorporating emerging AML transaction monitoring technology to manage risks related to higher-risk customers and activities can assist with meeting regulatory expectations around EDD, KYC, KYCC and KYT.

RSM’s approach

Our proven approach to assisting clients with navigating the regulatory complexities associated with onboarding new partner arrangements, customer types, products and services includes the following:

Map

AML practices to existing regulatory requirements and risk level.

Prioritize

identification of areas of regulatory exposure and adoption of AML technology.

Implement

processes to remediate regulatory exposure, as well as technology to enable EDD, KYC, KYCC and KYT.

Operationalize

the processes for onboarding higher-risk customers and activities, and for implanting transaction monitoring solutions.

Manage

customer and activity onboarding on an ongoing basis.

Capturing new market share in the current interest rate environment is a strategic component of a long-range growth plan. Financial institutions are well positioned to capture this growth opportunity; however, moving too quickly can expose you to unnecessary risk.

Working with an advisor experienced in implementing a risk management framework to successfully onboard higher-risk customers and activities is the first step in the journey.