Top 5 Regulator Hot Topics During COVID-19 and Beyond

Terri Luttrell, CAMS-Audit
August 27, 2020
Read Time: min

There is no doubt that the year 2020 is strange and maybe even frightening to many people. It seems there is no end to the bizarre events being reported from the pandemic to wildfires and murder hornets. However, as time goes on the “new normal” is settling in.  Humans are resilient, and difficult times that require change is not foreign to the financial services industry. Whether the timing is coincidental or intentional, FinCEN and federal regulatory agencies have been increasingly transparent in the first three quarters of 2020. 

The Federal Financial Institution Examination Council (FFIEC) released phase one of several updates to the BSA Examination Manual, clarifying certain aspects of regulatory expectation, specifically to the risk-based focus of an institutions BSA/AML program.  Additionally, FinCEN has released three recent COVID-19 related fraud advisories and red flags, and a regulatory joint statement regarding customer due diligence on Politically Exposed Persons (PEPs).  This frequency of communication to the financial services industry is abnormal to say the least.

Regulatory agencies understand that these are different times and are prepared to be more flexible in their examination.  The pandemic does not give an institution an excuse for systemic deficiencies in their BSA/AML program, but a few technical findings during an examination does not mean that the regulator will go straight to a Matter Requiring Attention (MRA).  Early communication with your regulator is key to understanding the struggles and successes of managing a BSA/AML program during a global pandemic.

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5 Things Regulators Will Look For In Your Next Exam

An institution should expect a more tailored exam based on their risk profile, and one size does not fit all.  While many things have changed in 2020 and will likely continue to change, some remain much the same.  Regulators have determined there are five top hot topics that institutions should expect during their next exam:

Risk-Based Focus:

This is the most important aspect of an upcoming exam.  Although this is not new, the updated FFIEC Exam manual stresses this importance throughout the updates.  What does that mean to your institution?  It is critical that your risk assessment is thorough and reflect the true risk of your customer base and the overall risk of the institution.

Documentation:

Thorough and complete documentation is king. If you have manual monitoring processes, document them.  If you have performed enhanced due diligence on a client, document it.  Remember, if it is not documented it did not happen.

Culture of Compliance:

Again, some things stay the same, and in this case, the culture of compliance is crucial to ensuring a strong BSA/AML program. If a regulator comes on-site, either in person or virtually, and there is no culture of compliance, be forewarned that the exam may not go well.  Be sure that senior management and the Board of Directors remain informed and understand all risks, as they are the fiduciaries of your institution.

Senior Management and Board of Director Communication:

As fiduciaries, senior management and the board of directors should understand all risks within the institution. Communication should be often and provided by the BSA Officer. Invite yourself to the table if necessary.

Regulatory Communication:

Examiners want and encourage communications from their financial institutions. The communication should be two ways, so do not be afraid to pick up the phone or send a note for questions, concerns, or ideas. Early collaboration will lead to a stronger BSA/AML program and a more positive examination experience.

Knowing these areas of focus, BSA leaders should give thought to how they would handle these five topics. After all being prepared is what we do.  Regulators will want to discuss what steps your institution has taken to ensure a strong BSA/AML program during this unprecedented pandemic.  Now is the time to show what you’ve got.

About the Author

Terri Luttrell, CAMS-Audit

Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size. She has successfully worked with institutions in developing BSA/OFAC programs, optimizing various automated solutions, and streamlining processes while ensuring all regulatory requirements are met. As the Compliance and Engagement Director at Abrigo, Terri provides insights that contribute and support long-term banking strategies based on analysis of market and industry trends, competitor developments, and financial and regulatory technology changes. She is an audit-certified anti-money laundering specialist and a board member of the Central Texas chapter of the Association of Certified Anti-Money Laundering Specialists (ACAMS). Terri earned her bachelor’s degree in business administration, specializing in business and finance, from the University of North Texas.

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