-
Regulators' latest guide for examining anti-laundering procedures lacks wholesale changes, but institutions still must decipher minute changes with potentially big impacts.
May 1 -
Federal regulators on Tuesday pushed back against the perception that they are cracking down harder on Bank Secrecy Act violations, saying they have not made recent changes to the rules or how they enforce them.
March 24 -
Observers fear state regulator Benjamin Lawsky's proposal to model anti-laundering reviews after Sarbanes-Oxley requirements could thin ranks of compliance specialists and slow monitoring.
March 6 -
The banking industry and federal regulators are struggling to find a middle ground between financial inclusion and preventing bad guys from gaining access to the mainstream financial system but it doesn't appear a solution is coming anytime soon.
December 29
Reducing the regulatory burden on small and midsize banks is a hot topic in Washington these days. Proponents of reform point to a recent report from the Harvard Kennedy School of Government, "
Compliance costs for Bank Secrecy Act and anti-money-laundering requirements stand out among the most onerous of these burdens. Indeed, the American Banking Association has identified BSA and AML requirements as "the most costly regulatory burden." In a 2012 survey of bank compliance officers, the ABA "found that mid-sized banks ($1-$9 billion in assets) have an average of four full-time compliance employees dedicated to BSA/AML functions." Many smaller banks do not have that kind of capacity.
Realistically, regulatory relief is unlikely to come in the form of relaxed BSA and AML protocols. The threat of terrorist financing and other criminal activity is too pressing for either Congress or banking regulators to retreat from their exacting standards. But standards need not slacken in order for community banks and other small financial institutions to find respite. There is a private market solution to this public challenge.
In this day and age, community banks should not be hunting global money launderers on their own. The price of technical competence is both far too high and a poor allocation of resources. BSA and AML compliance would be best achieved by smaller institutions with the assistance of expert third-party service providers. By aggregating clients, such vendors could implement proper divisions of labor and thereby lighten the regulatory burden with economies of scale.
In order to understand how BSA and AML compliance vendors could help ease community banks' regulatory burden while strengthening their controls, it's useful to consider three significant obstacles that small banks currently face in this space.
Shortage of Talent. Right now, the market is
Independent service providers, however, should be able to attract, train and maintain adequate numbers of BSA and AML professionals in order to leverage staffers on behalf of multiple clients. Succeeding in that task will be a keystone of their business.
Insufficient and Outdated Technology. In the AML arena, technology is the engine of success. Technology is quickly evolving, and the high costs of keeping up with rapid developments can be
It makes little sense for each institution to reinvent the wheel and separately pay for it. That compliance model is obsolete. High technology costs should be borne by specialized businesses that can most efficiently spread them.
Industry Derisking. In the past year, many large banks have
Vendors could also provide community banks and other like-size institutions with greater flexibility to offer new products and services. Before expanding into any new business line, responsible management should always ask whether an institution has "the expertise, capacity, and compliance resources to take on the new product or service," as the Federal Reserve Bank of San Francisco's BSA/AML risk coordinator Bronwen Macro
For all these reasons, federal and state bank supervisors might consider promoting the development of expert BSA/AML compliance vendors for community banks. This plan has advantages for regulators, too. Vendors could help standardize BSA and AML practices in a highly balkanized environment, thereby facilitating the work of bank examiners. And their birds-eye view of multiple client institutions could help regulators spot problematic or suspicious trends across several banking sectors.
One old adage remains true. Necessity is still the mother of invention especially in a world of increasing regulatory burden.
Daniel S. Alter is an adjunct professor and senior fellow at New York University Law School's corporate compliance and enforcement program. He previously served as general counsel to the New York State Department of Financial Services.