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Shared BSA Resources: What Do Regulators Say?

October 4, 2018
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Interagency Statement Provides Guidance on Collaborative Agreements Between Institutions

If you have implemented, or are thinking of implementing, a collaborative arrangement with other financial institutions to strengthen your BSA/AML program, you may want to take a quick pause. On October 3rd, an Interagency Statement specific to this topic was released. The Agencies have provided some logical guidance on how to share BSA resources, and when it is appropriate, or not appropriate, to do so.

The interagency statement does recognize that there are benefits to pooling resources. When smaller, less complex financial institutions work together within a collaborative arrangement they may have access to specialized expertise that may otherwise be cost prohibitive to them. This is definitely a plus – and the regulators agree!

The agencies support the use of these types of arrangements in situations such as facilitating your annual independent testing. For example, it is often difficult for smaller institutions to argue the independence piece within their organization due to limited resources when facilitating audits and monitoring activities – especially for BSA/AML. The Agencies are allowing an arrangement where qualified personnel at another institution shares their expertise and independence with a partnering institution to scope, plan and perform the independent testing - assuming the appropriate controls are in place. Additionally, the agencies express support in pooling funds to access higher expertise to facilitate training for two or more institutions.

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However, while they do allow for collaboration in some areas, there are other areas where it does not make regulatory sense to institute a collaborative agreement. The agencies are clear in their stance that a shared BSA Officer would be challenging for a multitude of reasons and thus likely deemed inappropriate in most situations.

It is important to note that even acceptable collaborate agreements require ample due diligence at the front end as well as on an ongoing basis – similar to normal vendor management activities around your other third-party relationships. These contractual agreements should include a well-defined scope, and require close oversight by senior management and the Board. Controls instituted over the arrangement should be commensurate with the scope of the collaboration and the size, complexity and risk profile of the collaborating institutions.

This interagency statement is a nice starting point for those of you considering such an arrangement. However, before you get too deep, reach out to your regulator to discuss the scope of what you are considering. Their guidance and expertise should point you towards success.

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