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BSA/AML Compliance

BSA/AML Compliance. Jeff Legette, Assistant Vice President Thursday, April 18, 2019. Disclaimer: The views expressed in the following presentation are those of the presenter and the Federal Reserve Bank of Kansas City and do not necessarily reflect the views of the Federal Reserve System.

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BSA/AML Compliance

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  1. BSA/AML Compliance Jeff Legette, Assistant Vice President Thursday, April 18, 2019 Disclaimer: The views expressed in the following presentation are those of the presenter and the Federal Reserve Bank of Kansas City and do not necessarily reflect the views of the Federal Reserve System.

  2. Quote of the Day OCC SDC GrovettaGardineer at Senate Banking Committee Hearing on BSA(Nov 29, 2018): “Our experience has demonstrated that there is no shortage of ideas to reform BSA and reduce the burden of BSA/AML regulations.” 2

  3. Discussion Road Map • Examination expectations • 2018 Common BSA Findings • The Four Pillars • Regulatory Expectations for Higher Risk Accounts • Recent Guidance: New Supervision and Regulation (SR) Letters • Regulatory Approach • Emerging Developments in BSA • Cannabis, Hemp, and Digital Currency 3

  4. Examination Expectations:2018 Takeaways based on common findings from 73 Examinations More than 70 percent of examinations required no supervisory follow-up. 4

  5. Examination Expectations:BSA/AML Program Pillars • Four Pillars of an Effective Program • System of internal controls to ensure ongoing Compliance • Importance of a Risk Assessment and Procedural Updates • Independent testing of BSA compliance • Minimum Independent Testing Expectations • A specifically designated BSA Officer • Sufficient Back-Up Support and Cross Training • Training for appropriate personnel • Including Non-Operational Staff 5

  6. Examination Expectations:High Risk Accounts • Risk Management Efforts around Higher Risk Account Types Require More Attention and enhanced due diligence • Understand the Customer’s Business Operations • Intended Use of the Account • Anticipated Transaction Volume • Products and Services Used • Geographic Location • Ongoing Due Diligence for Highest Risk • Periodic On-Site Visits • Interviews with Management • Closer Review of Transactional Activity 6

  7. Recent Guidance:New Supervision and Regulation (SR) Letters SR 18-3 Federal Financial Institutions Examination Council Examination Procedures on Customer Due Diligence and Beneficial Ownership Rule 7

  8. Recent Guidance:New Supervision and Regulation (SR) Letters SR 18-8 Interagency Statement on Sharing Bank Secrecy Act Resources • Addresses instances in which banks may decide to enter into collaborative arrangements to share resources to manage their BSA/AML obligations SR 18-10 ​Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing • Encourages banks to consider, evaluate, and responsibly implement innovative approaches to BSA/AML Compliance 8

  9. Regulatory Approach • Tenor: "We ought to be taking a fresh look at everything." – Federal Reserve Governor Randal Quarles, Vice Chair of Supervision • Tailoring: The Federal Reserve is in the process of implementing the BETR (Bank Exams Tailored to Risk) Program, which will include BSA. • Transparency: Recent Supervision and Regulation (SR) Letters communicate the Federal Reserve’s continued interest in right sizing expectations and addressing regulatory burden. 9

  10. Emerging Developments: Cannabis Source: https://www.csbs.org/marijuana-state-state-policy-map 10

  11. Emerging Developments: Cannabis • Variation of Legality by State 11

  12. Emerging Developments:Cannabis Future of Cannabis: • Despite State Action, Marijuana Remains Illegal Federally Under the Controlled Substances Act. • Several legislative initiatives currently under consideration by Congress • Secure and Fair Enforcement Banking Act (SAFE Banking Act) • Tracking developments alongside you 12

  13. Emerging Developments:Cannabis Banking Cannabis Customers: • Risk-Based decision making • Proactive Implementation of an Appropriate Program Structure • Adherence to FinCEN’s 2014 Guidance on Marijuana Related Businesses • “Ancillary Product” Questions 13

  14. Emerging Developments:Hemp • Agricultural Improvement Act of 2018 (Farm Bill) • Hemp removed from Schedule I Status under the Controlled Substances Act • Creates guidelines by which states and tribes can assume primary regulatory authority over the production of hemp • USDA implementing regulations remain pending 14

  15. Emerging Developments:Digital Currency • Digital currencies continue to garner significant attention. • Digital currencies, such as cryptocurrencies, currently pose limited concerns with respect to monetary control or financial stability. • Anonymity and resilience of cryptocurrency networks make them an easy target for money-laundering. • 2013 FinCEN Guidance to those administering, exchanging, or using virtual currencies. 15

  16. BSA/AML Supervisory Contact Information • Jackie Nugent; Assistant Vice President • (816) 881-2462; Jackie.Nugent@kc.frb.org • Tyler Crouse; Manager • (816) 881-2452; Tyler.Crouse@kc.frb.org • Phil Magathan; BSA Coordinator • (816) 881-4736; Phil.Magathan@kc.frb.org • Danielle Warner; Assistant BSA Coordinator • (402) 221-5752; Danielle.Warner@kc.frb.org 16

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