Publications & Resources
August/September 2007
Focus: Technology
Leveraging Technology to Simplify BSA Compliance
By Brad Johnson
It is no secret that regulators have been focusing on the community bank market to identify inadequate controls for BSA AML compliance. Although the compliance guidelines are not new, regulators have become more diligent to insure procedures are in place to monitor transaction activity, something that is difficult to accomplish without the aid of technology.
Richard Cahill, division leader in the supervision and regulation department at the Federal Reserve Bank of Chicago confirms that examiners are more focused on the BSA compliance efforts of community banks than in years past. According to Cahill, “I believe there will continue to be emphasis on an enterprise-wide approach, and part of this will probably mean examiners will be ‘kicking the tires’ in some areas that may have previously received a more cursory review.” He goes on to say that one of the areas that need improvement by community banks is monitoring suspicious activity. “There’s a need for ‘trend reports’ to identify patterns of suspicious activity, reviewing activity across business lines and understanding the total customer relationship,” Cahill said.**
Leveraging technology to simplify transaction monitoring is a necessity. It is not, however, a necessity for every institution to implement a full AML system because the complexity and cost of such systems may be overkill for many banks. The fact remains, however, that regulators are expecting banks to actively monitor daily transactions and look for historical trends; something that is very difficult to accomplish by manually looking at reports. The trick, then, is to automatically organize the massive amounts of data into manageable, meaningful information, while also understanding that you will never remove the human element because of the subjective nature of suspicious activity.
Below are items that institutions should consider when analyzing their BSA compliance efforts:
Data Gathering – You have all of the information on reports, so you should be able to handle this manually, right? Maybe not! Gathering data from multiple transaction points (cash, checks, wires, ACH, etc.) and associating this data with an account or household to get a transaction profile is difficult and very labor intensive. Doing this manually increases the risk of something being missed. Invest in technology to eliminate manual efforts and reduce risk.
Trend Analysis – Suspicious activity is more than single items over $10,000; it is often reflected in a trend over time. Getting a concise view of a customer’s transaction activity over the last 6 or 12 months, including monthly averages, is of great value. Using technology to monitor for anomalies beyond the account’s norm also simplifies the process.
Record Keeping – A recent FinCEN guidance outlined the need for proper record keeping of all supporting documentation related to a suspicious activity report (SAR). What qualifies as supporting documentation depends on the circumstances surrounding the SAR, but transaction records most always come into play. A database of transaction records that supports SAR filings and law enforcement contacts is optimal as it provides a centralized, searchable resource should regulators probe into a customer’s activity.
In summary, when trying to determine the optimal technology to simplify your BSA AML compliance efforts, you must understand the pros and cons of three general options. First, a comprehensive AML system is appropriate for some community banks as dictated by the client-base and/or transaction volume, but is generally the most complex and expensive option. Second, implementing a transaction monitoring system designed for BSA customer due diligence provides cost effective automation, simplified analysis and record keeping, and such systems can either replace or be an add-on to an AML system. Third, utilize a myriad of reports and spreadsheets until regulators identify deficiencies in your procedures or you can justify an investment to automate the process.
As community banks deal with the challenges of BSA compliance and the increased pressure to monitor transaction activity trends, leveraging technology must be part of the equation. There is no single solution that is right for everyone, so each institution must find the right balance between needs, resources and budget to find a solution that meets their objective.
**Quote taken from the Financial Managers Update – January 17, 2006
Brad Johnson is director of business developmentfor Centrix Solutions, Inc., in Lincoln, Neb. He can be reached at (402) 488-3990, bjohnson@centrixsolutions.com or www.centrixsolutions.com.
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