Navigating the impact of recent regulatory changes in the BSA/AML/OFAC landscape

Regulatory agencies have been busy in 2023 releasing joint statements with interpretive guidance focused on managing the risks associated with alternative banking. The guidance is far-reaching and requires an assessment of the Bank Secrecy Act, anti-money laundering, and Office of Foreign Assets Control (BSA/AML/OFAC) program.

What you need to know

Onboarding of nontraditional bank customers, products, and services are viewed as high risk by regulatory agencies. Their increased scrutiny is demonstrated through the regular issuance of sanctions, fines, and cease-and-desist orders.

Enhanced due diligence (EDD) requirements for onboarding new customers, products, and services are not going away anytime soon. Know your customer (KYC), know your customer’s customer (KYCC) and know your transaction (KYT) guidelines continue to be key themes.

Practical application of new guidelines

Are you thinking about banking a new, higher-risk customer type or branching out into a new product/service offering or partner relationship? If so, safety and soundness are critical components of your institution’s risk management function. Some considerations include:

• Evaluate your current risk assessment approach and update your risk appetite statement.
• Assess management’s tolerance levels for liquidity risk and increased exposure to regulatory scrutiny.
• Define your customer types, products, and services at a granular level.
• Assess the impact on the current BSA/AML/OFAC program, including the need to update policies, procedures, and business operation documents.
• Evaluate and update your existing customer risk rating methodology.
• Assess the ability of your existing AML transaction monitoring technology to handle onboarding of the new customer type, partner arrangement, product, or service.
• Obtain formal approval from senior management and the board.

Incorporating emerging AML transaction monitoring technology to manage risks related to higher-risk customers and activities can assist with meeting regulatory expectations around EDD, KYC, KYCC, and KYT.

RSM’s approach

Our proven approach to assisting clients with navigating the regulatory complexities of onboarding new partner arrangements, customer types, products, and services includes the following:

Capturing new market share in the current interest rate environment is a strategic component of a long-range growth plan. Financial institutions are well-positioned to capture this growth opportunity; however, moving too quickly can expose you to unnecessary risk. 

Working with an advisor experienced with implementing a risk management framework to successfully onboard higher-risk customers and activities is the first step in the journey.