December 19, 2019

Is Your Tool Sharpened? – BSA/AML Model Validations – WST

As regulators apply more and more scrutiny to banks’ compliance efforts with the Bank Secrecy Act and anti-money laundering (BSA/AML) efforts, many financial institutions are implementing modeling software.  Such software can be a great tool to help institutions monitor for suspicious activity, plus file required regulatory reports.  However, like with any tool, it will work the best when you understand all its capabilities and give it the proper maintenance that it deserves.  As any experienced carpenter knows, to achieve precise cuts, the saw’s blade must be sharp and well maintained.

If your financial institution has made the decision to purchase monitoring software, you know that the implementation process can be lengthy and time consuming.  The temptation to relax and enjoy the fruits of your labor, can be strong – but this isn’t the type of system where you can “plug it in and forget it”.  It needs constant care and attention to truly enhance your BSA/AML program and meet regulatory expectations.

If you implemented an automated BSA/AML system and have yet to complete a model validation, you should consider having one conducted soon. Regulators understand that the implementation process can take some time and allow financial institutions time to work through this process and refine system settings and parameters. However, once implementation is done and the bank is regularly using the solution for various functions such as alert monitoring, customer risk-rating, and/or filing of regulatory reports, a model validation should be conducted. Per the FFIEC BSA Manual, the financial institution “should review and test system capabilities on a periodic basis.”  A good benchmark is completing the first validation within 12 months of implementation, after which follow-up model validations should be conducted every 12 – 24 months, depending on the bank’s BSA/AML risk profile.

Past Weekly Security Tips – WST