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Anti-money laundering (AML) program effectiveness

Transforming AML programs to enhance outcomes for law enforcement and national security

The AML Act of 2020 represents a fundamental reform of the AML regime in the United States, codifying in law a shift in focus from maintaining technical compliance to a more risk-based, innovative, and outcomes-oriented approach to combat financial crime and safeguard national security. While implementing regulations will unfold over the coming years, the enactment of the AML Act presents an opportunity for financial institutions to rethink how they will drive AML program effectiveness in line with new requirements.

Conversations about strategic anti-money laundering priorities

Part 1

How can financial institutions better align with the public sector on strategic AML priorities? Watch part 1 of our financial services video series to hear three insights from Craig Timm, managing director of global financial crimes at Bank of America.

Part 2

There are ways for banks to better demonstrate that they’re providing useful reporting to law enforcement when it comes to new AML priorities. Watch part 2 of our financial services video series to explore how financial institutions can prove their crucial role to examiners, auditors, and other program evaluators.

Part 3

The AML Act of 2020 recognizes a need to enable financial institutions to reallocate resources from lower- to higher-value AML risks and activities. What should banks consider about this practice? Craig Timm, managing director of global financial crimes at Bank of America, shares his perspective in the third and final video of our financial services AML effectiveness series.



AML program effectiveness: A new focus on national priorities

A growing consensus has emerged among regulators, legislators, law enforcement, and industry that compliance with AML requirements has evolved into a layered and inefficient system that does not optimally serve the needs of law enforcement. In many instances, this has resulted in regulated financial institutions (FIs) spending time on activities that may do little to mitigate the risks associated with financial crime. The AML Act requires regulators to further enhance the risk-based approach to AML regulation and supervision, further advancing the proposals in FinCEN’s Advance Notice of Proposed Rulemaking (ANPRM) regarding AML program effectiveness. The AML Act also requires FinCEN to establish national priorities for AML and combating the financing of terrorism (CFT) for FIs to incorporate into their AML programs and regulators and examiners to incorporate in rules, guidance, and examinations.

The AML Act mandates that future regulation and supervision require FIs to focus attention and resources on higher-risk customers and activities, rather than lower-risk customers and activities, consistent with the risk profile of that institution. Similarly, the ANPRM had previously acknowledged that FIs “may reallocate resources from other lower-priority risks or practices to manage and mitigate higher-priority risks, including any identified as Strategic AML Priorities.” To further these objectives, the AML Act also explicitly encourages innovation and the leveraging of new technologies by FinCEN, the regulators, and FIs to increase the efficiency and effectiveness of the AML regime.

There are numerous challenges associated with making this pivot a reality, including addressing the question of how examiners and auditors will evaluate programs against these new expectations. These and other challenges will need to be addressed as the rulemaking process continues over the coming years.
Despite the associated implementation challenges, the shift in focus reflected in the AML Act is a positive and welcome signal. FIs are presented with an immediate opportunity to rethink how they will drive AML program effectiveness in line with national priorities and the other provisions of the Act. This will be a long-term journey that can also deliver significant benefits in terms of efficiency and return on compliance spend.

Building a risk assessment that considers both the institution’s risk and national AML priorities

There is a growing consensus among regulators, law enforcement, and the financial industry to reform and modernize the US anti-money laundering (AML) regime, as evident in US regulators’ recent notices and joint statements on the future of the AML regime. The objective of the reform initiative is to provide for greater focus on national AML priorities (e.g., terrorist financing, drug trafficking, cybercrime) in order to report useful information to law enforcement. Additionally, the initiative aims to increase AML program effectiveness and efficiency by building in flexibility to focus on priorities specific to industry and institution, and by reducing the effort spent on lower value activities.

Key challenges and actions to consider when building a risk assessment

1) Aligning to national priorities and enhancing outcomes for law enforcement

Key challenges and questions:

How will you pivot your AML program to focus on national AML and CFT priorities? How and at what frequency would you adapt your current risk assessment practices and capabilities to address the new priorities?

Do you have the required insight and information about priorities that affect your business?

How would you create more useful information for law enforcement?
How would the effectiveness of your FI’s AML program be evaluated in the future by the board, auditors, and examiners? What are the possible metrics and examples that could be used to demonstrate effectiveness?

How would independent testing of AML programs change, and how would examiners and auditors determine if FIs have done “enough” to demonstrate focus on the priorities and assess the value of the information produced?

What law enforcement feedback could be used to focus and refine your program?


2) Refocusing resources on higher-value AML activities

Key challenges and questions:

Given the expectations outlined in the AML Act, how would you create a repeatable change process to drive ongoing transformation and resource redeployment to high-value activity? How would you determine which activities are delivering low AML risk management value?

How would you document, justify, and defend AML program risk and procedural changes?

Where should you start? What’s the right strategy? How could you scale the effort and effectively reallocate resources?

3) Rethinking AML monitoring, investigations, and information-sharing

Key challenges and questions:

How can your FI enrich and automate current monitoring, investigating, and reporting approaches to deliver more useful information for law enforcement? Can routine activities be automated to free up resources and utilize standardized processes?

Are there areas delivering low AML risk management value, which could be scaled back?

What strategies and analytics can be deployed to reduce false positives coming out of your FI’s monitoring system(s)?

How will your FI better utilize and share information and intelligence from a broader array of internal, external, and public sources?
How can you appropriately leverage emerging tech and next-generation (NextGen) AML detection models? Can a NextGen approach help achieve the goal of identifying more complex suspicious activity?

What are the data, technology, modeling, and regulatory challenges associated with developing, testing, validating, and implementing such models?

Actions to take now

Evaluate how your risk assessment processes could be modified to more deeply address expected priorities, and identify metrics and examples that could be used to demonstrate effectiveness.

Assess areas of low added risk management value, in light of recent regulatory guidance, for potential reductions and/or reallocation of resources.

Consider ways to further enrich, automate, and innovate AML monitoring and investigations and to deliver more valuable information to law enforcement in a more efficient and effective manner.

How Deloitte can help

Deloitte’s Anti-Money Laundering & Sanctions practice helps clients reduce risks related to money laundering and terrorist financing and improve their ability to meet regulatory expectations for sound, effective AML programs and controls. Learn more about our services, as well as our global network of AML specialists, which leverages our global team of former AML compliance, technology, and analytics leaders from the public and private sectors, including former bank regulators, federal law enforcement officials, and AML compliance officers.

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