Account Monitoring January 7, 2004 Jay Repine FRB - Atlanta, Miami Branch
Today’s Session z. Risks z. The Basics z. Typical Problems z. Better Practices z. Other Monitoring Issues
Overview z. Integral part of effective AML program z. USA PATRIOT Act and SAR requirements reinforce z. Monitoring serves as safety net (EDD) z. Industry trends clearly towards automation z. One size does not fit all
Risks z. Reputational z. Legal y. SAR reporting requirements z. Operational z. Financial repercussions
Examinations - Onsite z. Review policies and procedures z. Review and document the account monitoring process z. Review effectiveness of monitoring process systems and exception reports z. Test process and review adequacy of responses and SAR filing process z. Determine if monitoring is in audit scope
Monitoring Procedures z. Outline responsibilities in monitoring process z. Outline process for establishing profiles/parameters for account monitoring z. Types of reports that will be used and frequency generated z. Response timeframes z. Follow-up/escalation process, if warranted z. Procedures for filing SARs
Account Monitoring z. Should cover all flows of funds into and out of customer accounts z. Cover all business lines z. Monitoring should be commensurate with size and risk profile of bank z. Independence of monitoring group z. Automated systems can be well suited for account monitoring
Automated Account Monitoring - “Not a Panacea” z Can be effective tools but … y. Up front investment of time and money y. Fine tuning process y. Still requires human intervention and judgement y. Challenges often underestimated
Monitoring Systems (AAMS) z Variety of approaches y. Comparison to profiles (customer or type of account) y. Transactions over specified $ amount y. Transactions with laundering characteristics y. Scoring system y. Identify transactions with NCCTs or other high risk jurisdictions z Federal Reserve does not endorse systems y. Chicago project
Automated Account Monitoring Systems z Common Problems y Data integrity (are all accounts/transactions being captured) y Unmanageable exception reports x. Cluttered with “noise” x. Lower risk exceptions/accounts on reports y Profiles x. Not validated (historical info used) x. Default profiles x. Exception variances y Lack of timely responses to inquiries y Insufficient explanations of activity x“is it reasonable and does it make sense”
Automated Account Monitoring Systems z. Effective Systems and Processes y. Well documented y. Identify true exceptions y. Highly involved compliance department x. Review EDD/CDD up front x. Serve as clearing house for explanations (central repository) x“Watch lists”/KYC Committee– better practice y. Risk segmentation (PEPs, high risk clients)
Automated Account Monitoring Systems z. Effective Systems and Processes (cont. ) y. Tiered approval process for profiles x. Upfront risk y. Controls over re-profiling process y. Manageable and effective exception reports x. Use a number of different reports y. Senior management commitment
Automated Account Monitoring Systems z Emerging Methodology – One size does not fit all y. Applicable to Correspondent Banks, MSBs, other high volume wire transfer clients z Aggregation of Wire Transfers y 12 -18 months y. Sorts -- Originators, Beneficiaries, Amounts y. All wires vs. account wire activity
Aggregation Example
Other Monitoring Issues z. Cash Letters z. Head Office Checks z“Concentration Accounts” z. Draft AAMS procedures
Questions? ? ?
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