Revisions to the FFIEC BSA/AML
Examination Manual and Federal Reserve
Board BSA/AML Examination Findings
and Issues
Timothy P. Leary
Senior Special AML Examiner
Board of Governors of the Federal Reserve System
Washington, DC
Overview
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Examination Manual
Examination Findings – Numbers
Examination Issues – Weaknesses
Examination Issues – Strengths
Emerging Issues
BSA/AML Examinations
• FRB continues to conduct BSA/AML examinations using
the procedures in the interagency FFIEC BSA/AML
Examination Manual.
• Most recent version issued April 2010.
• FRB examiners began using the revised examination
procedures for examinations that commenced on May 1,
2010 or later.
• Infobase: www.ffiec.gov/bsa_aml_infobase/
Purpose of the Manual
• Promote interagency consistency
• Consolidate BSA/AML regulatory
requirements in one handbook
• Provide guidance on BSA/AML topics to
examiners and banks
• Clearly and authoritatively communicate
regulatory expectations
History of the Manual
• Original issuance – 2005
– Emphasis: “Living document”
• Two “lives” to date – 2006 and 2007
• Most recent revision – 2nd Quarter 2010
– Longest time between revisions
– Most extensive revisions
Revision Process
• FFIEC (Federal Banking Agencies/State
Liaison Committee)
• Consultation with FinCEN and OFAC
• Industry input – meetings, conferences,
BSAAG subcommittees
• Examiner input
2010 FFIEC BSA/AML Examination Manual –
Significant Revisions
• Streamlined and reorganized procedures for reviewing BSA/AML
compliance programs;
• Created a new section on reviewing bulk currency shipments;
• Redrafted and renamed Enterprise-Wide section to acknowledge the
wide variety of programs that exist and enhance specific discussion of
consolidated compliance programs (now “BSA/AML Compliance
Program Structures”).
• Reorganized discussion of suspicious activity monitoring and reporting;
• Updated requirements for CTR exemptions;
• Clarified expectations for determining the severity of regulatory
violations;
• Updated discussions of recent developments in electronic banking,
Automated Clearing House transactions, prepaid cards, cover
payments, and third-party processor customers.
The Numbers (1/1/2012 – 5/31/2012)
• Total BSA/AML reviews by the FRB: 377
• Total violations cited: 29 (about 7.5% of total
exams)
• Total number of banks cited: 15 (about 4% of
total exams)
The Numbers (1/1/2012 – 5/31/2012)
• Total Title 12 individual subpart violations: 11
(resulted in 2 program violations).
• Most common Title 12 violations:
• System of internal controls.
• Independent testing.
• CIP.
• Total SAR rule violations: 6
• Total formal BSA/AML-related enforcement
actions: 0
Examination Issues – Weaknesses
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System of Internal Controls
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Customer risk ratings, identification of high-risk customers, and
periodic reviews.
RDC for foreign correspondent accounts.
SAR monitoring (calibrating filters and clearing alerts).
SAR documentation (to file or not to file).
Consolidated (firm-wide) programs.
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Mainly large, integrated firms with multi-national operations.
Effective consolidated approach to BSA/AML compliance risk
management (disparate operations, entities, product lines).
Importance of adequate policies and procedures, clear reporting lines,
and active vendor management.
Mergers and acquisitions (systems, data feeds,
structures).
Examination Issues – Weaknesses (cont.)
• Wholesale cash operations.
• Staff performance – turnover, new BSA officers,
resource issues.
• New product or market development does not
adequately consider compliance issues and
involve compliance personnel – the earlier the
better (e.g., RDC, ACH, remittances).
• Independent testing – outsourcing, depth and
breadth, considers factors set out in the Manual.
Examination Issues – Strengths
• Systems largely in place for traditional, retailoriented banking operations.
• Overall quality of programs has stabilized.
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Fewer or consistent number of overall violations.
Fewer or consistent number of serious violations.
Fewer enforcement actions.
• Risk assessments more formalized and useful –
sometimes even automated (notable exceptions
– see risk rating weaknesses).
Examination Issues – Strengths (cont.)
• Improved awareness that U.S. standards apply to
U.S. operations.
• Improved management focus since the crisis on
importance of BSA/AML compliance.
• Greater focus on higher-risk operations and
customers.
• Correspondent banking.
• Private banking.
• Politically exposed persons.
Emerging Issues
• Beneficial ownership/Customer due diligence.
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FinCEN ANPRM.
• IT Modernization.
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New CTR and SAR forms (March 2013).
Mandatory e-filing (June 2012).
• Iranian sanctions
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CISADA – “aggressive” implementation.
Section 311 designation – Central Bank of Iran.
National Defense Authorization Act.
• Revisions to FATF recommendations (40+9).
Contact information
Timothy P. Leary
Senior Special AML Examiner
Banking Supervision and Regulation
Board of Governors of the Federal Reserve System
Washington, DC
(202) 452-2428
Timothy.P.Leary@frb.gov
Thank You!
Questions?