Pub. 10 2020-2021 Issue 5

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S — H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S January • February 2021 5 encouraged. But key pressure points continued to emerge in the new environment for financial institutions. Not only were financial institutions required to identify fraudulent and potentially suspicious activity outside of normal trends, but they also had to detect disaster-related fraud, increase their protection of elderly customers and report on COVID-19 trends and losses. This is not to say financial institutions have not risen to the challenges. FinCEN’s April 3, 2020 notice encouraged financial institutions to “consider, evaluate, and, where appropri- ate, responsibly implement innovative approaches to meet their BSA/anti-money laundering compliance obligations.” Institutions have considered the health and safety of their employees and customers. They have maintained the finan - cial system’s stability, managing and mitigating the risks of money laundering and fraud losses. But what considerations should financial institutions continue to focus on as they navigate BSA/AML compliance? 1. Contingency Plans — Financial institutions need to be anticipating best and worse case scenarios. How will the financial institution reestablish its BSA/AML program and obligations once pivoting from remote work and returning to normal? If the pandemic con- tinues, what longer-term necessities and measures need to be taken to maintain or increase its BSA/ AML practices? 2. Customer Due Diligence — COVID-19 has tran- sitioned much more rapidly than an organic migra- tion to an online presence. Customers are expecting banks to go even more digital via their online chan- nels. This has not been without changed expected activity for both individuals and businesses. Has an institution increased its daily transaction limits to meet increased demands for additional cash? Has cash hoarding strained a bank’s CTR filings? Did the organization experience an increase in false positives for fraud due to changing customer behaviors? Fi- nancial institutions need to continually evaluate their programs to grab control of the challenges and added workload to its BSA/AML staff. 3. Risk Assessments — No longer something for larger or more complex financial organizational structures, the need for risk assessments has in- creased. Customers have changed the scale of their operations. Programs like the Paycheck Protection Program under the CARES Act have flooded lending and operations divisions within the bank, which in- hibits adequate oversight. Risk assessments need to be reassessed on both a customer base and organi- zational level to re-consider customer relationships’ nature and purpose, continue developing customer risk profiles, and reassess bank operational systems and controls. This was reemphasized in the update to the FFIEC BSA/AML Examination Manual re- leased April 15th. 4. Coordination and Communication — Identi- fying logistical challenges is one aspect; effectively communicating them to bank staff is another. Internal communication is essential. Impactful and cohe- sive running of compliance teams will aid financial institutions in minimizing the challenges of admin- istering an effective BSA/AML compliance program during a pandemic. A risk-based approach with diligent adherence to a bank’s BSA obligations will define compliance problem areas and assist financial institutions in mitigating their risks. 5. Technology — FinCEN’s April guidance encour- aged financial institutions to be innovative through the deployment of “novel technologies.” While this encouragement has many possibilities, it does create challenges for financial institutions. Banks still must maintain prudent evaluations whenever implement- ing innovative approaches to current BSA/AML processes. Financial institutions need to maintain robust oversight of their vendor management rela- tionships with third-party providers, especially as it relates to BSA/AML program implementation. Safety and soundness and consumer protection are heavily impacted by technology, increasing a bank (and regu- lator’s) focus on monitoring. The COVID-19 pandemic has introduced or increased emphasis on a risk-based approach to BSA compliance. It has supported flexibilities as promulgated by FinCEN and other agencies. While regulators have highlighted the difficulties realized or otherwise by financial institutions, little reassur - ance or solutions have been offered. For this reason, financial institutions need to consider, evaluate, and determine what a risk-based approach means for their institution. Criminals are luring targeted, vulnerable individuals and companies with an even stronger virtual presence. These attempts aim to undermine the bank’s due diligence and “know your customer” processes within a remote environment. It is imperative that financial institutions review FinCEN and other Agencies’ releases on advisories highlighting com- mon typologies used in fraud, theft and money laundering activities related to the pandemic. The significant increase in online and digital transactions coupled with cyberattacks and related fraud will continue to impact remote platforms and processes. Understanding the new and expanding defi - nition of fraud risk will force financial institutions to remain diligent with BSA/AML controls and procedures related to the pandemic. n Elizabeth K. Madlem, Vice President of Compliance Operations. Elizabeth is the Vice President of Compliance Operations and Deputy General Counsel at Compliance Alliance. In the past, she served as both the Operations ComplianceManager and Enterprise Risk Manager for Washington Federal Bank, a $16 billion dollar organization headquartered in Seattle, Washington. She has industry expertise and real-world solutions surrounding bank-enterprise initiatives and knowledge of contract law and bank regulatory com- pliance. An attorney since 2010, Elizabeth was a Summa Cum Laude, Phi Beta Kappa, Delta Epsilon Sigma graduate of Saint Michael’s College in Burlington, Vermont, and a Juris Doctor from Valparaiso University School of Law in Indiana. As the Vice President of Compliance Operations, Elizabeth oversees C/A’s day-to-day operations of the Hotline, as well as leading our Education initiatives. Elizabeth plays an important part in all operational areas of Compliance Alliance.