Anti-Money Laundering Program: Testing

by Jonathan Foxx
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I learned recently some rather extraordinary news: my firm is currently the only mortgage risk management firm in the country offering testing of a Residential Mortgage Lenders and Originator’s (RMLO’s) Anti-Money Laundering Program. This situation struck me as exceedingly odd, inasmuch as testing is a statutory requirement.

Testing annually is recommended, but not later than every eighteen months. In this first year, most companies are testing prior to the Financial Crimes and Enforcement Network’s (FinCEN’s)statute’s anniversary date in August. An audit of the procedures detailed in an RMLO’s policy and procedures must be conducted either an internal auditor, in accordance with FinCEN guidelines, or, in accordance with FinCEN guidelines, by an independent external auditor.

How is it that we are the first mortgage risk management firm to offer the independent auditing requirement? Maybe, even at this late date, the industry itself is still trying to absorb the AML compliance implementation, while struggling to integrate a multitude of other new regulations.

Many residential mortgage industry participants have run the Elizabeth Kubler Ross spectrum of denial to acceptance at a pace that leaves in its wake the sentiments of high dudgeon, middling dudgeon, intermediate dudgeon, towering dudgeon, lofty dudgeon - and, finally, recognition that the tide of change is actually upon us!

I have tried to make it clear in previous articles, that the AML program is quite different than other policy statements and procedures!

For two of my analyses on this matter, read my articles entitled Anti-Money Laundering Program - Preparation is Protection (8/2012), or Anti-Money Laundering Debuts for Nonbank Mortgage Companies (3/2012).

Over the years, we have conducted AML audits for banks. Now we conduct them for nonbanks and their Suspicious Activity Report (SAR) filing compliance. Soon enough, I expect another cottage industry to arise, chock full of firms that will promote such external auditing, bringing about yet another feeding frenzy!

In this article, I will offer some of the basics to AML testing for RMLOs, so that you have a high-level set of bullets that may offer some insight into the audit process. There are many moving features to such an audit. In constructing your own procedures, be aware that the time to learn about how to properly test and report audit results is most certainly not during an examination.

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IN THIS ARTICLE

Elements of Testing

Internal or External Auditing

Library

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Jonathan Foxx
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