The anti-money laundering (AML) act of the US, along with the Bank Secrecy Act (BSA) of 1970, became strengthened post the September 11 attacks, with the addition of the counter-terrorism financing (CTF) by the USA PATRIOT Act passed in 2001. After the US Senate bill was passed on January 1, 2021, the act was changed significantly further, and a new name, ‘The Anti-Money Laundering Act of 2020’ (AMLA). The new act provides more power and budget to the Financial Crimes Enforcement Network (FinCEN) to work closely with the law enforcement and national security authorities under congressional oversight. Consequently, financial institutions must modify their processes to be compliant with the new guidelines emanating from the act.
Significance of the AMLA
While there are multiple requirements of the AMLA that FinCEN must meet as per the prescribed timeline of six months, we will discuss some of the mandates that will impact financial institutions in particular.
To begin with, FinCEN is tasked with publishing national priorities every six months starting from June 2021. On June 30, 2021, the first version of the national priorities got published with the list of crimes to be prioritized. In line with the regulatory process for the new beneficial ownership reporting requirement, FinCEN must build and maintain technical infrastructure to store and retrieve beneficial ownership data of all the entities registered in the US. That said, FinCEN must modernize its technology infrastructure to include emerging trends like virtual currencies and alternate payment methodologies to contain crimes pertaining to money laundering. To further ensure the quality of reporting, FinCEN needs to review and revise the current currency transaction report (CTR) and suspicious activity report (SAR) reporting requirements and share constructive feedback with the financial institutions on the SARs reported.
With the increased power, FinCEN may request records of the correspondent accounts held in the US while issuing subpoenas to foreign financial institutions (FFI). As part of the changes in the AMLA, FinCEN launched a pilot program to share SAR insights with foreign affiliates and branches of the financial institutions, excluding the jurisdictions that sponsor terrorism.
How the AMLA matters to financial institutions
Though the AMLA focuses more on strengthening the governing bodies in terms of their governance controls, the key impact of the compliance program on financial institutions will include the following aspects:
- Financial institutions must update their compliance risk assessment policies and procedures to meet the national priorities released every six months by FinCEN.
- Financial institutions must design and deploy the process and controls to request beneficial ownership details from FinCEN and incorporate the data to trigger alerts in case of any mismatch with internal KYC records.
- Financial institutions should be prepared for the changes in reporting requirements to be implemented as per the recommendation from FinCEN, based on their revision exercise.
All the aspects listed above will have huge implications on the technology environment that financial institutions have built for FCC compliance. To meet the increasing expectations of the AMLA, financial institutions must evaluate and enhance their infrastructure landscape by implementing robust controls and technologies like analytics, AI, and automation.
The way forward for financial institutions
While financial institutions are already struggling to control their cost of compliance, these additional requirements demanded by the AMLA will increase the burden proportionately. Here are a few solutions that financial institutions can adopt proactively to balance compliance adherence and costs.
- Modernize AML functions with enhanced analytics and machine learning to identify suspicious transactions, trends, and patterns associated with financial crimes, generate qualitative alerts, and reduce the burden of recruiting additional staff.
- Define and deploy analytics-driven controls to update the feed from the ultimate beneficial ownership (UBO) database and trigger enhanced due diligence (EDD) reviews for KYC data mismatch in internal records.
- Incorporate the trends and patterns from the SAR feedback shared by FinCEN into the rule engine feed for enhanced quality of the alerts triggered.
- Deploy cognitive and RPA solutions to facilitate the investigation with minimal manual effort and eliminate the non-value-add activities in the operations, thereby reducing the compliance staff overhead.
- Train the compliance staff adequately on the national priorities and their implications in their current processes and procedures, which include new scenarios and changes in systems.
- Benchmark the compliance process and controls with the peers in the market either through industry analysts or through a strategic partner to build a roadmap for enhanced compliance.
In addition to the above, there is a plethora of solutions that financial institutions can adopt to meet the changes – in the wake of the AMLA – to bring in control and governance in the compliance program. Undoubtedly, the best way forward for financial institutions is proactive preparedness to handle the changes well ahead of the timelines and adapt in the most effective and cost-efficient way.