Anti-money laundering compliance has become a top priority for banks, financial institutions, and other related entities today. Without BSA/ AML compliance today, most financial entities may not be licensed, become blacklisted, or heavily sanctioned.
The pillar or roots of AML compliance today can be traced to the BSA, the Bank Secrecy Act. It can be said accurately that it is the foundational legislation for AML compliance in most regions of the world and even intergovernmental bodies. The legislation even informs the money laundering act in several countries.
This article will examine the five pillars of BSA/AML as a foundation for compliance with financial entities and how to implement them.
What are the Five Pillars of BSA/AML?
The five pillars of the Bank Secrecy Act (BSA) are the foundations of AML compliance. The BSA is a U.S. federal law that mandates financial institutions report suspicious activity to the government.
The BSA Act, also known as the Currency and Foreign Transactions Reporting Act, was enacted in 1970 to combat money laundering and other financial crimes.
Under this law, financial institutions are mandated to keep accurate records of transactions and file reports or daily aggregate transactions that total an amount of more than 10,000 dollars and to report any suspicious activity that may signal money laundering, tax evasion, or related illicit activity.
Despite several adjustments and amendments, the five basic core rules remain. The five pillars of bsa aml compliance are basically the core principles of maintaining compliance.
What Regulatory Body Enforces The Bank Secrecy Act?
The Bank Secrecy Act is enforced by the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This regulatory body aims to combat money laundering by establishing various responsibilities for financial institutions. The body also analyses and investigates escalated suspicious activity. The Office of the Comptroller of the Currency (OCC) also sometimes monitors and evaluates FIs' compliance with the BSA, even though it is not the main enforcing body of the BSA act.
What Are The Five Pillars of The BSA AML Compliance Program?
The five pillars of the BSA AML compliance program include;
- Possessing A Compliance Officer: A compliance officer or a suspicious activity reporting is needed to oversee compliance efforts and transactions and report.
- Developing And Establishing Internal Controls
- AML Compliance Training
- Regular Independent Auditing Of The Program
- Customer Due Diligence
How To Implement the Five Pillars of BSA/AML in a Compliance Program
1. Using Designated Officers
Qualified personnel of appropriate capacities will always be needed for organizations in any industry.
A knowledgeable officer should be appointed, an individual with the right expertise and authority to manage an efficient compliance program. Clear responsibilities should also be spelt out for the BSA/AML officer or team; this also includes how to manage compliance efforts and how to liaise with regulators.
2. An Internal System of Control Should Be Established
From developing detailed or robust policies to identifying, monitoring, and reporting suspicious activities. Some control should be established to ensure streamlined and efficient operations. Transaction monitoring tools should be utilized to detect unusual transactions, ensuring that the institution can act quickly. There should be a continuous evaluation of the institution’s exposure to money laundering risks, and controls should be updated accordingly.
3. AML Compliance Training
Regular AML compliance programs should be undertaken to ensure that staff are duly trained and informed about the best AML practices, including proactive measures. This should be particularly relevant for personnel who function in onboarding, compliance, accounting, and other related teams.
4. Regular Independent Auditing Of The Program
Independent auditors should be engaged, periodically or frequently, to ascertain or assess the compliance efforts of the company as well as customer records, transactions, and profiles. Regular audits will allow entities to remain aware of any gaps or weaknesses in their compliance program, enabling them to make necessary adjustments and improvements. This proactive approach helps maintain the integrity and effectiveness of the compliance program.
5. Customer Due Diligence
Stringent customer due diligence procedures should be implemented to verify customer identities and monitor transactions, especially for higher-risk clients.
Customer due diligence procedures inform proactive compliance measures and can help financial companies such as banks stay ahead of potential risks and regulatory requirements. Effective CDD helps identify suspicious activities early, thereby protecting the institution from financial crimes and ensuring compliance with AML regulations.
6. Utilising Compliance Software Tools
Compliance software tools are important for implementing the core BSA/AML policies. Tools such as transaction monitoring can aid customer due diligence and suspicious report activity. Youverify’s transaction monitoring tool can serve as an efficient BSA/AML compliance software that can provide real-time alerts, detailed analytics, comprehensive audit trails, and incorporated reporting tools, ensuring that institutions remain compliant with the latest regulations. By leveraging these tools, financial institutions can enhance the efficiency and accuracy of their compliance programs, ultimately reducing the risk of financial crimes.
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Implementing the five pillars of BSA/AML compliance is essential for any financial institution to prevent and detect financial crimes.
By establishing robust internal controls, conducting independent testing, appointing a knowledgeable BSA/AML officer, providing ongoing employee training, and practicing diligent customer due diligence, institutions can build a strong compliance program. This will not only help in meeting regulatory requirements but also protect the institution’s integrity and reputation in the financial industry.
Incorporating compliance software into the BSA/AML program can streamline and enhance the implementation of the five pillars. By automating key processes, providing real-time insights, and ensuring consistency in applying internal controls, compliance software helps institutions build a more robust and efficient compliance program.
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