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FinCEN and Federal Banking Agencies Encourage Banks to Innovate

Joint Statement Supports Adopting New Technology to Combat Money Laundering and Terrorist Financing

December 4, 2018 by Verafin

A joint statement released on Dec. 3, 2018, by the Financial Crimes Enforcement Network (FinCEN) and its regulatory partners — the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency — encourages financial institutions to embrace innovative approaches to combat money laundering, terrorist financing, and other illicit financial activity.

In an accompanying statement, Sigal Mandelker, Treasury Under Secretary for Terrorism and Financial Intelligence addressed the importance of innovation:

“As money launderers and other illicit actors constantly evolve their tactics, we want the compliance community to likewise adapt their efforts to counter these threats… The joint statement issued today with our fellow regulators is a central part of our ongoing commitment to foster innovation that helps protect our financial system and makes our country safer.

The Agencies noted that innovative approaches, enhancements to existing tools, and new technologies such as artificial intelligence, can enhance aspects of BSA/AML compliance programs such as risk identification, transaction monitoring, and suspicious activity reporting. These approaches can not only maximize use of a financial institution’s compliance resources, but also strengthen its efforts to prevent illicit activity.

Financial institutions considering adopting new approaches and technologies in their BSA/AML compliance programs should be encouraged by the Agencies statement on the use of pilot programs to evaluate the effectiveness of new solutions. Financial institutions can participate with confidence that the use of pilot programs or new approaches will not increase regulatory expectations.

The example provided within the statement highlights that:

“when banks test or implement artificial intelligence-based transaction monitoring systems and identify suspicious activity that would not otherwise have been identified under existing processes, the Agencies will not automatically assume that the banks’ existing processes are deficient. In these instances, the Agencies will assess the adequacy of banks’ existing suspicious activity monitoring processes independent of the results of the pilot program.

By supporting the implementation of responsible innovation and new technology, it is clear that the Agencies are committing to engaging with the private sector to advance innovation in the BSA/AML space. As FinCEN Director Kenneth A. Blanco noted:

“This statement is an example of our joint resolve to work together with important stakeholders in the innovation space to keep our nation prosperous, our financial system secure, and our communities and families safe from harm.”

As criminals become more sophisticated, and the risk landscape becomes more complex, financial institutions are facing increasing challenges to mitigate risk and prevent illicit activity while maintaining a strong compliance program. Encouraging institutions to look for new approaches and technologies to deploy in their BSA/AML programs to maximize resources, strengthen compliance and enhance transaction monitoring, the Agencies have also reassured institutions that evaluating or implementing innovative solutions should not increase regulatory expectations.

Maintaining a strong BSA/AML compliance program is critical to protecting the financial system from money laundering and terrorist financing, but the future of fighting crime relies on financial institutions’ ability to innovate faster than criminals can evolve.

When and where to innovate

As your institution looks to apply new approaches and technology, it’s important to consider where innovative solutions, like Verafin, can offer the most benefit to your BSA/AML program:

  • Improve Compliance Processes: Technology solutions can automate manual or repetitive tasks for compliance processes such as regulatory reporting, resulting in increased efficiency and reduced costs.
  • Enhance Detection Capabilities: Consider how new technology, such as cross-institutional detection and machine learning could reduce false positive rates, proactively identify risks, and improve results of your existing detection capabilities.
  • Strengthen Investigations: Limited time and resources can impact your investigations. Evaluate approaches and technology that can help investigators and expedite investigations, such as 314(b) information sharing.
  • Develop New Solutions: By partnering with technology providers financial institutions can establish trusted partnerships to build effective solutions to real-world problems. Verafin offers pilot programs for application of machine learning technology and development of new analytics.
Verafin’s industry-leading, cross-institutional Fraud Detection and Anti-Money Laundering (FRAMLx) collaboration software is utilized by 1700 financial institutions across North America. With powerful cloud-based technology, FRAMLx facilitates 314(b) information sharing, and offers innovative artificial intelligence and machine learning capabilities to proactively prevent cross-channel fraud, uncover a wide range of suspicious activity, and enhance BSA/AML procedures through end-to-end, risk-based CDD/EDD functionality.