Anti-money Laundering Act 2020 & its Impact on Financial Institutions

Bashyam Selvaraj

Consultant, TCS’ Banking and Financial Services (BFS)

US AML Act 2020: – What it means to financial institutions

The US’ anti-money laundering (AML) act, along with the Bank Secrecy Act (BSA) of 1970, was strengthened after the September 11 attacks, with the addition of 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 significantly changed and given 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 law enforcement and national security authorities under congressional oversight. Consequently, financial institutions must modify their processes to be compliant with new guidelines based on the act.

Significance of the AMLA

While there are multiple requirements of the AMLA that FinCEN must meet 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 were published with a 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 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) requirements and share constructive feedback with the financial institutions reported on the SARs.

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 to implement the changes in reporting requirements per the recommendations 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 costs 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 mismatches 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 current processes and procedures, which include new scenarios and changes in systems.
Benchmark the compliance process and controls with 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.

About the author

Bashyam Selvaraj

Bashyam Selvaraj is a domain consultant with the Financial Crimes Compliance CoE of TCS’ Banking and Financial Services (BFS) business unit. He has over 15 years of experience in banking and financial services with core expertise in AML, KYC and fraud prevention. Bashyam has led multiple consulting, process enhancement, and transition projects related to fraud detection and AML operations for TCS’ clients the world over. He has a bachelor's degree in computer science and a master’s degrees in information technology as well as business administration from Bharathidasan University, Tamil Nadu, India.

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Find the latest news about TCS in our Newsroom

Recent Press releases

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TCS works hand in hand with world-leading investors.

US AML Act 2020 – What it Means to Financial Institutions?

About the author

Bashyam Selvaraj

TCS is here to make a difference through technology.

We’re in it for good, driving positive change for the benefit of all.

Extraordinary expertise leads to remarkable results.

Want to be a global change-maker? Join our team.

Find the latest news about TCS in our Newsroom

Recent Press releases

Recent News

Recent recognitions

Upcoming events

TCS works hand in hand with world-leading investors.

About the author

Bashyam Selvaraj

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