National Credit Union Administration

Examiners Should Focus on Risk, Not Technical Perfection

On April 15, 2020, the Federal Financial Institutions Examination Council (“FFIEC”) released updates to the Bank Secretary Act/Anti-Money Laundering (“BSA/AML”) examination manual (the “Manual”). As the FFIEC Interagency press release described, the Manual provides “instructions to examiners when assessing the adequacy of a bank’s BSA/AML compliance program.” The “release of the updated sections provides further transparency into the BSA/AML examination process and does not establish new requirements.” The press release further stated the revisions were made to, among other objectives, emphasize examiners should be “tailoring BSA/AML examination to a bank’s risk profile,” to “ensure language clearly distinguishes between mandatory regulatory requirements and supervisory expectations” for examiners, and to “incorporate regulatory changes since the last update of the Manual in 2014.”

The Federal Deposit Insurance Corporation (“FDIC”) also issued a press release regarding the updates. Its statement recognized “financial institutions are faced with uncertainty during this unprecedented time,” therefore the FDIC cautioned the update, “which supports tailored examination work, has been in process for an extended period and should not be interpreted as new instructions or as an augmented focus.”

The updates focus on four steps in the examination process:

  • Scoping and Planning
  • BSA/AML Risk Assessment
  • Assessing the BSA Compliance Program
  • Developing Conclusions and Finalizing the Examination

The updates emphasize examiners should take a “risk-focused” approach to tailor the review of a regulated institution’s BSA/AML compliance program, meaning the examination should be tailored to the risk profile of that specific institution.  The Manual updates incorporate guidance on more recent developments such as Customer Due Diligence (“CDD”) and Beneficial Ownership requirements and a recognition of innovations in collaborations among smaller institutions.  Importantly, the Manual reminds examiners that banks have flexibility in the design of their BSA/AML compliance programs, and that minor weaknesses, deficiencies, and technical violations alone do not indicate an inadequate program.
Continue Reading FFIEC BSA/AML Examination Manual Updates Reveal Exam Process and Expectations

We regularly blog about the conflict between state and federal law related to cannabis and the uncertainty regarding how federal criminal and Bank Secrecy Act (“BSA”) law will, or will not, be enforced against financial institutions providing banking services to marijuana-related businesses (“MRBs”). Because of this continuing uncertainty, many MRBs must operate on a cash-only basis. This creates significant safety and security concerns for both the MRBs and the communities in which they operate, causes regulatory and tax compliance challenges, and handicaps business growth.

This post provides an update on very recent efforts to provide a level of federal protection to financial institutions which provide banking services to MRBs. First, the Senate Banking Committee held a hearing regarding challenges faced by financial institutions and businesses in the cannabis sector. Second, the National Credit Union Administration (“NCUA”) issued guidance regarding servicing hemp producers and the cannabis industry. This NCUA guidance came quickly on the heels of a statement by the chairman of the NCUA that his agency won’t sanction federally-chartered credit unions for working with state-legal MRBs.
Continue Reading Update: Recent Momentum in Efforts to Provide Cannabis Businesses Access to Financial Services

On July 22, 2019, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) (collectively the federal banking agencies), issued a joint statement entitled Joint Statement on Risk-Focused Bank Secrecy Act/Anti-Money Laundering Supervision (the “statement”).

The specific emphasis of the statement is to reiterate that the federal agencies will take a risk-focused approach to examinations. The statement itself does not purport to create new requirements but rather is a tool to enhance transparency in the approach used by the federal banking agencies in planning and performing BSA/AML examinations. As the statement notes, it “aligns with the federal banking agencies’ long-standing practices for risk-focused safety and soundness examinations.”

Risk Profiles

At the outset, the federal banking agencies urge banks to conduct a comprehensive risk assessment, which are deemed “a critical part of sound risk management.” Specifically, banks themselves have unique risk profiles given each bank’s focus (i.e., “a bank with a localized community focus likely has a stable, known customer base”) and complexity, which must be assessed at the outset when developing and implementing an adequate BSA/AML program.

Of particular note, the federal banking agencies state that banks that “operate in compliance with applicable law, properly manage customer relationships and effectively mitigate risk by implementing controls commensurate with those risk are neither prohibited nor discouraged from providing banking services.”  The statement goes on to assert that “banks are encouraged to manage customer relationships and mitigate risks based on customer relationships rather than declining to provide banking services to entire categories of customers.”
Continue Reading Joint Statement Issued by Federal Banking Agencies Highlights Importance of Banks’ Risk-Assessments