Regulators: Don’t Be Afraid To Innovate When It Comes To BSA Compliance

December 4, 2018 at 8:54 am Leave a comment

Federal financial regulators, including the NCUA, recently issued a joint statement encouraging banks and credit unions to “consider, evaluate and where appropriate responsibly implement innovative approaches” to meet their BSA compliance obligations.

Here are my takeaways, but please read the memo and decide for yourself how best to integrate this joint statement into your compliance framework if you think it’s appropriate.

  • Developing technology, such as artificial intelligence, is well-suited for helping credit unions enhance their BSA programs.
  • Far from discouraging innovative approaches, regulators are encouraging pilot programs to test and validate the effectiveness of these new approaches.
  • In fact, pilot programs “in and of themselves” should not subject banks or credit unions to examiner discipline even if they prove to be unsuccessful.
  • Here’s where things get a little tricky: At the same time, banks and credit unions have a continuing obligation to comply with BSA, so they should only implement innovative approaches following adequate due diligence.
  • The agencies want to act as catalysts for change and are each working to “establish products or offices that will work to support the implementation of responsible innovation.”
  • No credit union should feel pressured to adopt new technology. It can continue to take whatever approach to BSA compliance that is best for the credit union based on its size and sophistication.

Frankly, I’m not sure quite what to make of this. I have always felt that the existing regulatory mandate for financial institutions to have effective BSA compliance programs commensurate with their size and sophistication is the perfect encapsulation of everyone’s responsibilities. To me, it goes without saying that, as technology evolves, so too would a bank’s or credit union’s approach to BSA compliance. It also goes without saying that more can be expected of a $25 billion institution than a $25 million credit union when it comes to the scope and speed of technological innovation.

Conversely, if there are institutions that are gun-shy about trying innovative approaches to BSA compliance to the extent that this statement provides them assurances that they will not be penalized for using new techniques, than this is a good thing. Similarly, to the extent that regulators are willing to actively participate in the development stage, this will lessen the risk that institutions will be fearful of investing in new technology that their regulators will ultimately deem insufficient.

New York CU Attorney Subject to Prohibition Order

NCUA last week issued a prohibition order against Mitch Reiver, who was Melrose CU’s General Counsel.

Entry filed under: Compliance, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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