Last week, the Financial Crimes Enforcement Network (FinCEN) and its regulatory partners issued a joint statement in an effort to increase transparency around risk-focused Bank Secrecy Act/anti-money laundering supervision. The joint statement was made as a result of a working group established by the US Department of the Treasury’s Office of Terrorism and Financial Intelligence and the federal depository institutions regulators, and was the third statement resulting from the working group. 

The joint statement was intended to give greater clarity to banks and to the public on the expectations of federal bank regulatory agencies. While it does not establish new requirements, it gives a helpful glimpse into how federal banking regulatory agencies tailor their examination plans and procedures based on the risk profile of each bank.

Banks must establish and maintain procedures that reasonably assure compliance with the requirements of the Bank Secrecy Act (BSA) and must work to detect, monitor and shut down money laundering activities. Banking compliance programs are usually risk-based, allowing the compliance program to allocate compliance resources commensurate with its risk. These compliance programs are designed to identify and report potential money laundering, terrorist financing and other illicit financial activity. In turn, federal banking agencies ensure a bank’s compliance with the BSA and anti-money laundering (AML) regulations. 

The joint statement details how federal banking agencies assess a bank’s risk profile, including by:

• Looking at the bank’s BSA/AML risk assessment.
• Considering independent testing or audits.
• Reviewing analyses and conclusions from prior examinations.
• Contacting the bank between examinations.
• Considering the bank’s ability to identify, measure, monitor and control risks. 

This information helps examiners plan and scope the examination, as well as initially evaluate the adequacy of the compliance program. By taking this approach, the agencies can allocate more resources to higher-risk areas, and fewer resources to lower-risk areas when conducting examinations. 

The joint statement reiterates that banks are encouraged to manage customer relationships and mitigate risks based on customer relationships, versus declining to provide banking services to entire categories of customers. It also notes the regulators’ view that a bank’s board of directors provides guidance regarding acceptable risk exposure levels and corresponding policies, while management translates the board’s goals, objectives and risk limits into prudent operating standards through the implementation of policies, procedures and practices.

This latest guidance provides an important roadmap for banks seeking to understand what federal regulators are looking for in their on-the-ground approach to BSA/AML supervision. Finally, while the joint statement is directed toward banks, other financial institutions subject to BSA/AML requirements, including insurance companies, broker-dealers and mutual funds, may want to consider familiarizing themselves with it, in the event that their regulators decide to look to it for guidance.

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