2010 Federal Reserve Board BSA/AML Examinations

Revisions to the FFIEC BSA/AML
Examination Manual and Federal Reserve
Board BSA/AML Examination Findings
and Issues
Timothy P. Leary
Senior Special AML Examiner
Board of Governors of the Federal Reserve System
Washington, DC
Examination Manual
Examination Findings – Numbers
Examination Issues – Weaknesses
Examination Issues – Strengths
Emerging Issues
BSA/AML Examinations
• FRB continues to conduct BSA/AML examinations using
the procedures in the interagency FFIEC BSA/AML
Examination Manual.
• Most recent version issued April 2010.
• FRB examiners began using the revised examination
procedures for examinations that commenced on May 1,
2010 or later.
• Infobase: www.ffiec.gov/bsa_aml_infobase/
Purpose of the Manual
• Promote interagency consistency
• Consolidate BSA/AML regulatory
requirements in one handbook
• Provide guidance on BSA/AML topics to
examiners and banks
• Clearly and authoritatively communicate
regulatory expectations
History of the Manual
• Original issuance – 2005
– Emphasis: “Living document”
• Two “lives” to date – 2006 and 2007
• Most recent revision – 2nd Quarter 2010
– Longest time between revisions
– Most extensive revisions
Revision Process
• FFIEC (Federal Banking Agencies/State
Liaison Committee)
• Consultation with FinCEN and OFAC
• Industry input – meetings, conferences,
BSAAG subcommittees
• Examiner input
2010 FFIEC BSA/AML Examination Manual –
Significant Revisions
• Streamlined and reorganized procedures for reviewing BSA/AML
compliance programs;
• Created a new section on reviewing bulk currency shipments;
• Redrafted and renamed Enterprise-Wide section to acknowledge the
wide variety of programs that exist and enhance specific discussion of
consolidated compliance programs (now “BSA/AML Compliance
Program Structures”).
• Reorganized discussion of suspicious activity monitoring and reporting;
• Updated requirements for CTR exemptions;
• Clarified expectations for determining the severity of regulatory
• Updated discussions of recent developments in electronic banking,
Automated Clearing House transactions, prepaid cards, cover
payments, and third-party processor customers.
The Numbers (1/1/2012 – 5/31/2012)
• Total BSA/AML reviews by the FRB: 377
• Total violations cited: 29 (about 7.5% of total
• Total number of banks cited: 15 (about 4% of
total exams)
The Numbers (1/1/2012 – 5/31/2012)
• Total Title 12 individual subpart violations: 11
(resulted in 2 program violations).
• Most common Title 12 violations:
• System of internal controls.
• Independent testing.
• CIP.
• Total SAR rule violations: 6
• Total formal BSA/AML-related enforcement
actions: 0
Examination Issues – Weaknesses
System of Internal Controls
Customer risk ratings, identification of high-risk customers, and
periodic reviews.
RDC for foreign correspondent accounts.
SAR monitoring (calibrating filters and clearing alerts).
SAR documentation (to file or not to file).
Consolidated (firm-wide) programs.
Mainly large, integrated firms with multi-national operations.
Effective consolidated approach to BSA/AML compliance risk
management (disparate operations, entities, product lines).
Importance of adequate policies and procedures, clear reporting lines,
and active vendor management.
Mergers and acquisitions (systems, data feeds,
Examination Issues – Weaknesses (cont.)
• Wholesale cash operations.
• Staff performance – turnover, new BSA officers,
resource issues.
• New product or market development does not
adequately consider compliance issues and
involve compliance personnel – the earlier the
better (e.g., RDC, ACH, remittances).
• Independent testing – outsourcing, depth and
breadth, considers factors set out in the Manual.
Examination Issues – Strengths
• Systems largely in place for traditional, retailoriented banking operations.
• Overall quality of programs has stabilized.
Fewer or consistent number of overall violations.
Fewer or consistent number of serious violations.
Fewer enforcement actions.
• Risk assessments more formalized and useful –
sometimes even automated (notable exceptions
– see risk rating weaknesses).
Examination Issues – Strengths (cont.)
• Improved awareness that U.S. standards apply to
U.S. operations.
• Improved management focus since the crisis on
importance of BSA/AML compliance.
• Greater focus on higher-risk operations and
• Correspondent banking.
• Private banking.
• Politically exposed persons.
Emerging Issues
• Beneficial ownership/Customer due diligence.
• IT Modernization.
New CTR and SAR forms (March 2013).
Mandatory e-filing (June 2012).
• Iranian sanctions
CISADA – “aggressive” implementation.
Section 311 designation – Central Bank of Iran.
National Defense Authorization Act.
• Revisions to FATF recommendations (40+9).
Contact information
Timothy P. Leary
Senior Special AML Examiner
Banking Supervision and Regulation
Board of Governors of the Federal Reserve System
Washington, DC
(202) 452-2428
[email protected]
Thank You!

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