The Alphabet Soup of Compliance

Protecting the financial system from rogue actors is a critical responsibility of all financial institutions and a robust Know Your Client (KYC) vetting process for new clients is the first step to ensuring that terrorists, money launderers, and other bad actors don’t gain access.

There are a multitude of acronyms that compromise the compliance and regulatory framework – all designed to protect both clients and financial institutions. Here in the United States, these regulatory elements include the Bank Secrecy Act (BSA) which mandates a robust Anti Money Laundering (AML) program covering Customer Due Diligence (CDD). Compliance is enforced by a mix of federal government agencies including the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Asset Control (OFAC), both of which are part of the U.S. Department of the Treasury. The 50 states add another layer of complexity into the regulatory mix.

In May of 2016, the Treasury Department issued Final Rules under the BSA to clarify and strengthen CDD requirements. With the Final Rules, financial institutions are required to:

1. Implement strict policies and procedures in their AML program involving the acquisition of beneficial owner identification of legal entity customers;

2. Obtain sufficient information regarding the nature and purpose of the customer relationship in order to form a customer risk profile;

3. Monitor client transactions and customer information on an ongoing basis.

These enhanced CDD requirements all aim to diminish criminal exploitation of the banking system through anonymous access.

Bad actors use a combination of deceitful measures to access the financial system including phishing schemes, identity theft, and email hacking. Being proactive in efforts to eliminate risk when acquiring new clients and to prevent bad actors from accessing the global financial system is critical to ensuring that the global financial system operates smoothly and efficiently.