U.S. federal regulators recently issued an interagency statement on the use of model risk management guidance (MRMG), intended to give clarity to banks in complying with Bank Secrecy Act/anti-money laundering (BSA/AML) and Office of Foreign Assets Control (OFAC) regulations and requirements.
As management techniques for BSA/AML compliance shift toward the use of technology, automation, AI, and machine learning, these models become more difficult to evaluate through MRMG. Fortunately, the AML Act of 2020 requires the Treasury Department to create a standard for testing models associated with transaction monitoring systems that involves innovative methods such as AI and machine learning.
The interagency statement also notes that these models should be evaluated regularly. Reevaluation should take place when there are changes to a bank’s risk profile, such as alterations to services, products, customer types, or growth. The statement also emphasizes the importance of monitoring third-party models used for BSA and AML. Organizations need to be prepared to conduct efficient monitoring and reporting on matters involving currency transaction reports (CTR) and any suspicious activity.
Finally, U.S. federal regulators are hoping to receive feedback from banks to further understand their use of technology and AI and provide guidance that can be utilized by financial institutions in developing and implementing effective BSA and AML risk management programs. Organizations will be able to submit information and comments to their supervisory agency until June 1, 2021.
In addition, regulators are asking for comments on bank practices to determine whether the principles discussed in the statement support bank BSA/AML compliance and whether additional guidance should be provided; the comment period closes on June 11, 2021.
A GRC technology architecture assists institutions in introducing and implementing controls for improving their BSA/AML compliance systems and avoiding penalties. It provides training programs that educate employees and establish proper processes, keeps organizations in tune with the changing regulatory landscape and updated guidance and industry standards, and provides regulatory bodies with a complete and transparent audit trail for BSA/AML processes and controls.