|Monitoring Systems: Making the most of automated AML aid (July 15, 2009)|
Best approaches blend manual and automated tools—with judgment and up-to-date “tweaks
Posted on July 15, 2009
By Steve Cocheo, executive editor
Talk to your vendors
Dan Stipano, deputy chief counsel with the Office of the Comptroller of the Currency, opened the session with a review of his agency’s recent “horizontal review” of larger banks’ monitoring and reporting efforts. (A horizontal review is a targeted and narrowly focused exam of a particular function across a given sample of banks.)
“The good news is that no systemic concerns were identified,” said Stipano. He added that one issue that concerned examiners was the manual element in some institutions’ monitoring and reporting. In some higher-risk locales they felt it could have been more effective.
Another concern was in regard to the “fine-tuning” of some of the automated systems the banks used. Stipano said that while automated systems appear to be helping institutions meet their BSA/AML duties, some banks aren’t getting the most out of them that they might. He said banks should keep in touch with vendors of their systems, to make sure that their software remains “tweaked” to the vendor’s current suggested levels. These are based on what the companies are seeing in the field, and, when taken advantage of, can help banks ensure that nothing untoward gets through their net.
An interesting change in vendor behavior was noted by panelist William Langford, senior vice-president, and director, Global Anti-Money-Laundering, JPMorgan Chase.
“As recently as three years ago,” said Langford, “you had vendors claiming that they had developed the silver bullet.”
The industry isn’t seeing such claims about monitoring systems now. And Langford said that in the absence of such hyperbole, he and other bankers have begun to feel that they can have serious conversations with vendors about their offerings. (Prior to joining the bank, Langford served as associate director for the Regulatory Policy and Programs Division of the Financial Crimes Enforcement Network—FinCEN.)
Make changes carefully
Stipano’s fellow panelist Richard Small reminded listeners that, as valuable as automated monitoring is, often details picked up through manual methods could pick up very helpful leads. He urged bankers not to be tempted into de-emphasizing manual monitoring because the bank had adopted automated methods.
“We can’t get fixated on only one approach,” he warned. Small, former federal anti-money-laundering official with the Federal Reserve Board, is vice-president, Enterprise-Wide Anti-Money Laundering and Sanctions Risk Management at American Express, New York.
Stipano agreed. “You can have the best system in the world, but you can’t expect to flip a switch, put it on autopilot, and have it do your job for you,” he said.
Small, noting that monitoring systems run on rules, reminded the audience that consistency in use of rules for evaluating transactions was important. He said analysts sometimes shut down systems and change the rules they are using for arbitrary reasons.
That is a bad practice, warned Small.
“I would strongly encourage you to not just wake up some morning and change a rule,” said Small. He said his own organization requires analysts who wish to change rules to state what trends or behaviors they think they would be able to spot, were the change to be made. The proposal, rationale, and decision are all documented, Small said, and he is the final person to sign off on what the revised rule will be.
“In this way,” said Small, “if someone comes to look at that later, we have a very well-defined process that explains it all.”
Small’s description of his process prompted an audience question: What about changing entire monitoring systems? The questioner’s bank did this, running old and new side by side, for a time, to ensure no gaps in detection.
OCC’s Stipano jumped in, advising any bank adopting a new system to keep their examiner informed. Small agreed.
Changes that should be made
Yet change can be warranted.
“You have to acknowledge that there is no one way to monitor. You develop different ways to slice and dice and look at data, and you have to develop a balanced approach,” said Chase’s Langford. “Sometimes, you have to have the courage to say: I don’t want to do it this way anymore.”
When changes are made, Langford continued, banks sometimes find patterns or items that they haven’t found before. At times the new developments can be quite surprising. Some typologies are common ones that sources such as FATF—the Financial Action Task Force on Money Laundering—warn banks about. Others they discover themselves.
When do you stop?
Going back to that needle amongst the hay, bankers not only have the challenge of finding it, but researching it once they find it. Where’d the needle come from? Are there other such needles? Speakers discussed the balancing act that banks must strike, between investigating leads down to the ultimate facts versus determining when there’s enough information to file a worthwhile Suspicious Activity Report and leave the rest to law enforcement.
It may not be solely a matter of remembering who the cop is and who the banker is. Sometimes, legitimate concerns over what illicit operators may be trying to use the bank for can impel a BSA officer to bore in. The activities detected, repeated by others, could harm the bank.
“It’s hard to draw a fine line,” said Chase’s Langford. On the other hand, he admitted, investigating “is the exciting part of the job.”
In the end, Langford said, a bank has to set reasonable limits on investigation time and effort, and make it as clear as possible when the time has come to move on.
Actually, law enforcement agencies face the same quandary, audience member Dennis Lormel commented. With limited resources, government investigators must pick and choose among their cases, to determine what gets major attention and what gets less. Lormel, who spoke at another conference session about SAR reporting, is managing director and co-chair of the Anti-Money Laundering Practice Group, IPSA International, Washington, D.C., and a former senior FBI agent. His FBI service includes work as chief of its financial crimes section, and as developer of key work done in the wake of 911.
Concerns over resources, applicable at any time, are underscored in this period of budget constraints in many companies. OCC’s Dan Stipano noted that no one can ignore that factor.
However, Stipano said that “banks need to find ways to stay vigilant. Over the last ten years, we’ve found that it’s when we are unvigilant that bad things happen.”
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[This article was posted on July 15, 2009, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2009 by the American Bankers Association.]
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