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WASHINGTON The Federal Deposit Insurance Corp. issued a $140 million enforcement action against Banamex USA, a Citigroup subsidiary, on Wednesday for having Bank Secrecy Act and anti-money laundering deficiencies.
July 22 -
It isn't just payday lenders and money-services firms that are being ditched by banks lately. Community banks are getting cut off too.
December 24 -
Federal prosecutors are cracking down on violations of the Bank Secrecy Act often without first clarifying to virtual currency firms and other industries the sort of behavior will get them in trouble.
July 10 -
The digital currency world is readying itself for more regulatory penalties over the failure to meet Bank Secrecy Act and anti-money-laundering requirements following federal agencies' action against Ripple Labs last month.
June 10 -
In the wake of a report that the Financial Crimes Enforcement Network has identified more than 50 credit unions at risk of serving as a conduit for money laundering activities, the CU trades and regulators alike were scrambling to respond to what the NCUA suggested could be a "regulatory blind spot."
June 4
Banker's Toolbox now has a private equity war chest.
The Austin, Texas, company, which helps community banks and credit unions detect money laundering and fraud, has received a significant investment from Accel-KKR, a tech-focused private equity firm.
"We've bootstrapped our way through the last 15 years, but we now felt it was the right time to find a partner to help us get to the next level," said Daniel Cho, chief executive of Banker's Toolbox. "Our plan is to triple or quadruple our company in the next four to five years."
The fintech space overall has been a hotbed for investments from private equity firms, banks and other investors. This particular investment is noteworthy because it taps into one of the hot button issues for bankers today: how they stay compliant with the Bank Secrecy Act and regulations. And as a growth-oriented private-equity investor, Accel-KKR is betting that the hunt for compliance solutions is going to accelerate.
Cho said Banker's Toolbox has 650 customers nationwide and tends to stick to the banks with less than $10 billion in assets. The companies did not disclose the amount of the investment or the percentage of the stake. But Bankers' Toolbox has earmarked the money for the marketing of its existing products, research and development and potential acquisitions of complementary companies. With its additional capital, Cho said the expansion could mean targeting larger companies, too. Still, Cho said the investment is fresh and an exact strategy to deploy the capital is still being decided.
The company has several products within its proverbial toolbox, but the main product is called BAM+, software that uses analytics to detect unusual activity and file suspicious activity reports. The company says its product is different than "first-generation" software that perhaps generates too many false positives and can generate duplicates.
The software is customizable, so a bank can set exceptions. When the product detects unusual activity, the bank receives a specific alert noting the transactions involved.
The company's niche fits squarely into one of the hottest areas in banking today. With safety and soundness concerns of the 2008 financial crisis largely in the rearview mirror, regulators have become more focused on BSA/AML compliance.
BSA/AML compliance "has been the biggest pain for community banks since Sept. 11," Cho said. "After [the regulators] cleaned up the crisis, they picked up right where they left off on this issue."
For private equity, those market forces make for a good investment thesis.
"We like the regulatory aspect of the solution. Compliance is increasingly under scrutiny; regulators are paying more attention to it and so compliance has been a good market trend to invest in," said Fred Sturgis, a managing director at Accel-KKR, which has $2.5 billion of capital under management. Its typical investments are between $10 million and $100 million in the tech space.
Sturgis said the company was on the hunt for a compliance-related company and knew Banker's Toolbox from past discussions. The private-equity firm looks for companies that tend to be niche players focused on one particular vertical, making Banker's Toolbox a good fit.
Banker's Toolbox engaged Raymond James to help it find potential partners about three months ago, Cho said.
It is the firm's first foray in product geared toward community banks, Sturgis said, noting that community banks have felt more compliance scrutiny from regulators following the downturn.
Essentially, the biggest banks are accustomed to being scrutinized, but it has left the smallest banks feeling pinched.
"It is becoming a more widespread issue," Sturgis said.
Community banks are spending more money and resources to stay compliant with BSA/AML, observed Sam Kilmer, senior director of Cornerstone Advisors. Cornerstone data shows that banks are hiring more people in BSA functions. For instance, the median bank respondent in its 2014 performance report had 216 employees per BSA staffer in 2013, compared to 280 in 2010.
And banks are supplementing that additional manpower with the type of automation that Banker's Toolbox provides.
"Community banks have in many ways learned to adapt and the way they are addressing is with more technology," Kilmer said. "That tends to be in the area of analytics - anything that finds fraud, analyzes the transactions - those are the types of tools that Banker's Toolbox and others are providing."
Banker's Toolbox is joined by other industry players like Patriot Officer and Verafin in the BSA/AML space, Kilmer said. Additionally, the major core providers like Fiserv, FIS and Jack Henry also have BSA/AML solutions.
Further, Kilmer said automation is not an elective component of a compliance strategy. At this point, a bank that handles compliance completely manually would be a rarity and would likely find itself facing regulatory scrutiny.
"Launching a mobile banking app, although it may not sound optional, is optional. But automation in compliance is not optional," Kilmer said. "When your regulators come to visit and ask how you are managing your fraud protection, there has to be an automated approach included in that answer."
