Check investigation documentation
An essential component of AML quality control is reviewing documentation tied to investigations to ensure it supports the disposition of the investigation or analysis. The resolution should be clear and decisive, and documentation should support the reasoning behind the disposition (either clearing or escalating) of the alert or case. BSA/AML software can automate the documentation behind decisions, contributing to efficient, compliant programs.
“In many cases, if a financial institution is understaffed and having difficulty keeping up, things start to slip, including their documentation,” Hawkins said. However, “You want to be able to look at an alert one month later and say, ‘I see why they cleared it.’ A note that just says, ‘Reviewed it; nothing suspicious’ – that’s not sufficient.”
Similarly, documentation for customer due diligence (CDD), 314(a) and 314(b) requests and responses, beneficial ownership information, and Office of Foreign Asset Control (OFAC) and Section 311 searches should be reviewed for completeness.
Consider timeliness in QC reviews
AML quality control policies and procedures should also address the timeliness of the financial institution’s AML reporting. Hawkins recommends examining how long it’s taking staff to file Currency Transaction Reports (CTRs) and SARs, including renewals for continuing activity. Financial institutions have 15 calendar days from the reported transaction to file a CTR and must file an initial SAR within 30 days of an institution determining one should be filed.
Deadlines for timely SAR filings highlight the difficult balancing act required of AML/CFT Officers, especially in smaller institutions where the same staff performing work on alerts, cases, and SARs are also performing quality control reviews.
“You don’t want quality control to supersede the regs,” Hawkins said. “But what you don't want to happen is to be 6 to 10 months behind on your QC either.” Ideally, quality control should occur the month after work is performed, he added.
Again, the frequency of QC reviews should be risk-based. For example, investigations tied to higher-risk activities might need to be reviewed for quality control more frequently, perhaps weekly.
Quality control can head off trouble down the road for BSA/AML and fraud departments. Hawkins said taking the time to establish a QC program, document it, and execute it on an ongoing basis can ensure that program objectives are being met.
“Trust but verify,” he said.
How AML quality control supports exam preparation
Quality control helps AML/CFT Officers check whether staff are following written procedures and whether those procedures are achieving their intended outcomes. Reviewing QC policies and results can also help identify gaps in alert handling, investigation documentation, or reporting timeliness before an exam.
Above all, quality control should be tailored to the institution’s risks, just as all aspects of an institution’s AML program should be risk-based. Hawkins said that QC policies, procedures, and results should be based on the institution’s unique fingerprint.
AML/CFT Officers should document quality control policies and procedures to ensure they are communicated and followed by front-line staff. However, the details of the quality control review will depend on several factors.
For example, reviewing alerts is a major part of the AML program, so an AML team’s alerts will certainly receive scrutiny. However, a new employee might receive quality control examination on 100% of their work reviewing alerts during and soon after training. QC reviews could be lowered to 5% to 10% of the work on an ongoing basis once the expected quality target is achieved and maintained. Similarly, an employee with recent quality issues might need to have a higher percentage of alerts reviewed for a period of time until they lower their error rates, Hawkins said.
Building or maintaining a robust AML program can seem daunting, but it doesn't have to be. For financial institutions that need assistance in enhancing their programs, remediation assistance is available through BSA/AML consulting and advisory services.
