Federal regulatory agencies are encouraging banks to explore innovative approaches to strengthen the financial system against illicit financial activity.
In a joint statement issued this week, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Financial Crimes Enforcement Network (FinCEN), the National Credit Union Administration, and the Office of the Comptroller of the Currency said such measures are necessary to meet their Bank Secrecy Act and anti-money laundering (BSA/AML) compliance obligations.
“The agencies recognize that private sector innovation, including new ways of using existing tools or adopting new technologies, can help banks identify and report money laundering, terrorist financing, and other illicit financial activity by enhancing the effectiveness and efficiency of banks’ BSA/AML compliance programs. To assist banks in this effort, the agencies are committed to continued engagement with the private sector and other interested parties,” they said in the joint statement.
Innovation has the potential to augment aspects of banks’ BSA/AML compliance programs in areas including risk identification, transaction monitoring, and suspicious activity reporting, the agencies added.
“Some banks are becoming increasingly sophisticated in their approaches to identifying suspicious activity, commensurate with their risk profiles, for example, by building or enhancing innovative internal financial intelligence units devoted to identifying complex and strategic illicit finance vulnerabilities and threats. Some banks are also experimenting with artificial intelligence and digital identity technologies applicable to their BSA/AML compliance programs,” the regulators said.
The agencies said they would not penalize or criticize banks that choose not to pursue innovative approaches, as long as they maintain effective BSA/AML compliance programs commensurate with their risk profiles. Further, regulators said they are committed to continued engagement with the private sector to modernize and innovate in their compliance programs.
The Consumer Bankers Association called this action an important first step in improving the current BSA/AML regulations and guidelines.
“Giving banks the opportunity to innovate will help make our financial system more secure,” CBA President and CEO Richard Hunt said. “Criminals and terrorists are constantly evolving and using increasingly advanced methods to move money and finance their operations. It only makes sense for federal regulators to give financial institutions the ability to work toward staying a step ahead.”
The American Bankers Association (ABA) was also supportive of the idea, which was introduced at Financial Crimes Enforcement Conference, which was co-hosted by ABA.
“We believe this announcement and the creation of an interagency working group are positive steps toward making BSA/AML compliance more efficient and effective,” Rob Nichols, ABA president and CEO, said. “The conference showcases how banks work diligently alongside regulators and law enforcement to protect the financial system from a growing array of evolving threats. Allowing for more private sector innovation can help ensure that we stay one step ahead of bad actors, while also reducing compliance burdens. We appreciate this initiative from regulators and look forward to working with them to update and improve the BSA/AML compliance framework.”