*  *   *

Followers of this blog, any of my speeches, or now my tweets, know that I have attempted to advocate over the years for a "participatory regulatory democracy."

What I mean is that when there are formal opportunities to offer advice and counsel or actual opposition to a proposal, affected parties should not waste time on the sidelines but get into the debate and affect change.

It is too easy to complain (or "whine") and simply say, "The process is broken, so why should I expend resources when nothing positive will occur?"

What is more difficult is to offer solutions, options, and specific areas for change. So, during these times, the cynics seem to rule the day.

As Brian Wilson wrote, "I guess I just wasn't made for these times." (Note: This song came from the Beach Boys' "Pet Sounds," one of the seminal albums of the 1960s that holds up well today and actually was the inspiration for the Beatles to write, "Sgt. Pepper's Lonely Hearts Club Band.")

Risk-based approach: myth, legend, or scam? (And what are you going to do about it?)

My overarching theme in 2013 may be that AML examinations are like ships coming ashore and missing the pier by a mile.

I am not interested in those that say I am either biased or do not hear both sides. Trust me on this one, folks, we are missing the goal of the Bank Secrecy Act and all AML rules by a long shot. A major part of this failure is the lack of true support for the "risk-based approach."

If examiners are constantly second-guessing compliance officials (and you know who you are) and not deferring to risk assessments and the response to formal and solid risk scoring, the risk-based approach will not (and never will) actually work.

What's the point in having a concept that does not work or is not supported?

Those affected by this inconsistent and conflicting concept do not feel free to comment-- and regulators in their current role will never admit they get something wrong.

Time to take this on

Let's leave our egos at the door (tribute to Quincy Jones) and have a real discussion on the risk-based approach.

The first public way to start this high-level discussion is for the private sector part of the AML community to offer its point of view to a newly-created "working group" organized to review the current (June 2007) risk-based approach (RBA) Guidance for financial institutions issued by the Financial Action Task Force (FATF) and determine what, if any, additions, enhancements, or changes are necessary as a result of the release of the revised FATF Recommendations in February of last year. Rob Rowe of ABA and myself are on this group, so please reach out to either of us in the next two months. 

As many of you know, the purpose of the guidance is to:

• Support the development of a common understanding of what the risk-based approach involves.

• Outline the high-level principles involved in applying the risk-based approach.

• And indicate good public and private sector practice in the design and implementation of an effective risk-based approach.

What is more compelling and actually should get all of you engaged (if not enraged) in this debate is the 2007 language that states:

"By adopting a risk-based  approach, competent authorities and financial institutions are able to ensure that measures to prevent or mitigate money laundering and terrorist financing are commensurate to the risks identified. This will allow resources to be allocated in the most efficient ways. The principle is that resources should be directed in accordance with priorities so that the greatest risks receive the highest attention. The alternative approaches are that resources are either applied evenly, so that all financial institutions, customers, products, etc. receive equal attention, or that resources are targeted, but on the basis of factors other than the risk assessed. This can inadvertently lead to a 'tick box' approach with the focus on meeting regulatory needs rather than combating money laundering or terrorist financing." (Emphasis added.)

Do we think a true RBA exists? Do I have to answer that question for you?

Click here for more information.

*Some of Brian Wilson’s lyrics could be construed as compliance-related or, at least, reference the writing of comment letters (work with me here!):

“Every time I get the inspiration
To go change things around
No one wants to help me look for places
Where new things might be found”
 

Disclaimer: John Byrne's views do not necessarily reflect those of the American Bankers Association.

• About John Byrne, CAMS 
• Byrne is Executive Vice-President of the Association of Certified Anti-Money Laundering Specialists (ACAMS). He has written extensively on AML issues for 25 years and has appeared on television and testified before many congressional committees on AML-related policy issues. Prior to joining ACAMS, John was the Global Regulatory Relations Executive at Bank of America. Previous to that, he worked for the American Bankers Association for 22 years and was responsible for ABA's lobbying, regulatory, and educational efforts on money laundering, and other compliance issues. He received the ABA's Distinguished Services Award and was also the first private sector recipient of the “Director's Medal for Exceptional Service” from the Treasury Department's Financial Crimes Enforcement Network (FinCEN). Byrne can be e-mailed at jbyrne@acams.org.

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