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Banking Regulators to Encourage AML Innovation

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Financial regulations (Photo: Shutterstock).

Banking regulators, including the Treasury’s Financial Crimes Enforcement Network, will give financial institutions, including credit unions, the freedom to test innovative anti-money laundering/Bank Secrecy Act programs without the fear of being penalized, the agencies said today.

“Pilot programs undertaken by banks, in conjunction with existing BSA/AML processes, are an important means of testing and validating the effectiveness of innovative approaches,” the agencies said, in a joint announcement. “While the agencies may provide feedback, pilot programs in and of themselves should not subject banks to supervisory criticism even if the pilot programs ultimately prove unsuccessful.”

In a separate statement, the National Credit Union Administration said, the agreement among regulators “establishes no new supervisory expectations related to the use of innovative strategies or technology like those discussed in the joint-agency statement and a credit union’s participation in such innovations related to BSA/AML compliance will not affect the agency’s assessment.”

Members of Congress have said they are concerned that the federal BSA/AML statutes are out of date.

The agencies said they recognize that the private sector is developing new technologies to help financial institutions identify and report suspicious activity.

Institutions are becoming more sophisticated in their approaches to identifying suspicious activities. Some institutions, the agencies said, are experimenting with artificial intelligence and digital identity technology to enhance their programs.

“The agencies welcome these types of innovative approaches to further efforts to protect the financial system against illicit financial activity,” the statement said.

Pilot programs that expose gaps in a BSA/AML compliance program will not necessarily result in supervisory action.

Financial institutions that choose not to test new techniques will not be penalized for that decision.

The group also announced that FinCEN has developed an initiative that will include dedicated time for financial institutions, technology companies and others to discuss the implications of products and services.

The banking regulators said that each of them will be working to support the implementation of innovative ways for compliance with the financial crimes laws.

Last week, Senate Banking Committee Chairman Mike Crapo (R-Id.), said that members of his committee are united on the idea that there is room for change in the “decades-old system” to enforce the financial crime laws.

However, testifying at a hearing of Crapo’s committee, FinCEN Director Kenneth Blanco said AML/BSA efforts are working well.

Credit union trade groups said last week that the federal government must be more sensitive to the compliance costs of small financial institutions.