The fourth instalment in Jim Richards’ Renewing the BSA Series.
Innovation is a key theme throughout the Anti-Money Laundering Act of 2020 (AMLA or the Act). As financial crimes evolve and regulatory compliance commitments advance, financial institutions need innovative solutions to keep pace with reporting requirements. This will help protect their customers and themselves from potentially suspicious activities within regulated, unregulated and under-regulated financial service sectors.
While it will take years to fully realize the positive impacts of the AMLA, by focusing on the role of innovation and technology in modernizing the fight against financial crime, the Act tells us that innovative uses of new technologies will play a big role.
Encouraging Technological Innovation
Although the AMLA is the first time Congress has encouraged technological innovation in AML/CFT, the regulatory community has been doing so for years. In October 2018, 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 issued a Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing. They called on financial institutions,
“to consider, evaluate, and, where appropriate, responsibly implement innovative approaches to meet their Bank Secrecy Act/anti-money laundering (BSA/AML) compliance obligations, in order to further strengthen the financial system against illicit financial activity.”
The AMLA solidifies this approach with a “clear mandate for innovation” (National Defense Authorization Act For Fiscal Year 2021, Conference Report To Accompany H.R. 6395).
Enshrined in Section 6002, the Act clearly identifies technological innovation as one of its six purposes. It states:
“to encourage technological innovation and the adoption of new technology by financial institutions to more effectively counter money laundering and the financing of terrorism”
Further support for technological financial crime solutions can be found in the Joint Explanatory Statement of the Committee of the Conference, that accompanied the National Defense Authorization Act, noting:
“The conference agreement also provides a clear mandate for innovation, while providing for regulatory processes for financial institutions to effectively innovate, test, and adopt leading technologies, such as artificial intelligence, to track, identify, and report suspicious financial activity. It also provides for dedicated staff and multiple fora to support public-private collaboration and advancement of this issue.”
Section 6211 of the Act also establishes a new “tech symposium”, whereby the U.S. Department of the Treasury is urged to convene international and domestic regulators, financial institutions, law enforcement, and technology companies to periodically demonstrate and test related innovations. These changes will introduce AML participants to the latest technology and mandate its effective incorporation into comprehensive BSA AML-CFT compliance programs.
Further to this theme, Section 6207 of the AMLA Act adds a new BSAAG Subcommittee on Innovation and Technology. The aim of this subcommittee is to study and make recommendations on how to, “most effectively encourage and support technological innovation [and reduce] obstacles to innovation that may arise from existing regulations, guidance, and examination practices.” And section 6208 directs FinCEN and each of the federal functional regulators to appoint a “BSA Innovation Officer” reporting directly to the head of each of those agencies.
Rise to the Challenge
It’s clear that the AMLA is focused on enhancing the AML regime through innovative technologies. Private sector financial crimes professionals are well aware of the numerous challenges that confront them as they look to innovate — BSA/AML compliance teams and investigators are overwhelmed with the day-to-day tasks of managing alerts, filing regulatory reports, and managing audits and examinations, leaving little time and resources available to develop and implement new or innovative approaches.
But with renewed calls for technological financial crime management solutions, and a mandate for innovation, financial institutions need to find the time and the resources to consider more automated and efficient BSA/AML solutions built with artificial intelligence, machine learning, and behavior-based analytics. Innovative solutions and new technologies can help institutions rise to the AML/CFT challenges of today and effectively move forward in this new era of the BSA/AML regime.