On Dec. 3, 2018, Treasury’s Financial Crimes Enforcement Network (FinCEN) and federal banking agencies issued a joint statement to encourage banks to consider and implement, where appropriate, innovative approaches to meet their Bank Secrecy Act/anti-money laundering (BSA/AML) compliance obligations. Also on Dec. 3, 2018, Under Secretary of the Treasury for Terrorism and Financial Intelligence, Sigal Mandelker, spoke at the American Bankers and the American Bar Association’s Financial Crimes Enforcement Conference and reiterated Treasury’s commitment to encouraging innovative approaches by banks to better protect the U.S. financial system from illicit financial activity.
This is the first joint statement from all major bank regulators and Treasury endorsing the use of innovation in BSA/AML compliance. A joint statement is welcome because it shows that the regulators are, in principle, in alignment on the use and value of innovative techniques to combat financial crime. Importantly, the joint statement notes that the deployment of innovative techniques in BSA/AML compliance should focus on enhancing a bank’s AML program to better detect financial crime as a means to maximize a bank’s compliance resources and not solely as a means to cut costs.
The joint statement makes clear that the bank regulators and Treasury welcome, among other methods, the use of artificial intelligence (AI) to enhance a bank’s capabilities to better detect suspicious activity. To that end, the joint statement briefly discusses the manner and means of using innovative techniques in BSA/AML compliance. The regulators addressed the use of pilot programs as a means to experiment with innovative techniques and explained that experimentation should be carried out “in conjunction with existing BSA/AML processes.” The regulators called for prudent evaluation of pilot programs to determine “whether, and at what point, innovative approaches may be considered sufficiently developed to replace or augment existing BSA/AML processes.” In other words, don’t dial down your traditional BSA/AML program while you are innovating. There is an expectation that existing compliance programs will run in parallel until new techniques are found to be effective, reliable, and sustainable. Finally, the joint statement also cautioned that “when banks test or implement artificial intelligence-based transaction monitoring systems and identify suspicious activity that would not otherwise have been identified under existing processes, the agencies will not automatically assume that the banks’ existing processes are deficient.” As such, while banks can expect encouragement and assistance from regulators while implementing pilot programs, the possible implications of their efforts are not yet fully understood.
AI can improve a financial institution’s BSA/AML compliance program by identifying smarter, targeted, and more productive alerts. A helpful result of using AI is potentially fewer false positives and a more targeted, efficient compliance program. At the same time, the enhanced BSA/AML compliance program may help uncover suspicious patterns of behavior that might go unnoticed under older technology. AI does not mean that a bank must “rip and replace” its currents systems. Rather, AI complements and leverages well-tuned transaction monitoring scenarios to enhance current systems. To that end, a first step is to outline a small AI pilot program that covers a discrete area of your BSA/AML compliance program. Starting small while evaluating results on a real-time basis can help banks better understand and use AI in a BSA/AML program.