Independent Banker - April 2019 - 33

Next: Expect the unexpected in your future bond portfolio
(AI), as a means of supporting bank efforts to combat
financial crimes.
" There's been a political battle over the fact that the regulatory
structure makes it extremely difficult to innovate,
streamline and improve the way people respond to their
BSA obligations, " explains Karen Garrett, a partner in the
banking and technology division of law firm Stinson Leonard
Street, LLP. " Regulators wanted to respond. "
And respond they have. In the most recent guidance,
regulators lean into a high-tech approach to BSA and AML
compliance, referencing AI as a solution for banks in the
automation of manual screening processes. AI presents a
wealth of potential by enabling machine reading of data
to identify suspicious transactions. In particular, AI can
help rule out false positives based on account and transaction
history.
Top takeaways
This most recent guidance encourages this type of innovation
in compliance efforts. Reading between the lines,
regulators open a door to new BSA and AML screening
technologies in three main messages.
First, they reassure banks that testing new technology
will not, in and of itself, lead to additional scrutiny
or criticism. The guidance explicitly notes that if a bank
is exploring a new technology via a pilot program, that
program, even if unsuccessful, will not subject the bank
to supervisory reproach. What's more, if these exploratory
efforts identify problem areas in existing BSA and
AML programs, they will not necessarily result in supervisory
action.
" I think they wanted to get across that they would not
be criticizing banks for experimenting with AI or any software, "
notes Michelle Bass, regulatory compliance director
for financial institutions at CliftonLarsonAllen, LLP. " I
took it as a positive note, as a signal that they want banks'
programs to be the best they can be, and they realize AI is
a factor in this. "
Yet, alongside this message of innovation comes a point
that urges a bit more caution: Pilot programs should serve
as an extension of today's protocol. As financial institutions
try on new technologies, they need to keep up with
current efforts.
" The second part of the message is, 'But don't stop
what you're doing,' " Garrett points out. " They're saying,
yes, innovate alongside what you're doing today until you
know this new process is better or enhances what you're
already doing. "
Finally, there's a clear signal that regulators will be seeking
additional input from the community on BSA and AML
innovations. FinCEN announced that it's launching an initiative
to further explore challenges and opportunities in
this space, and other agencies will follow suit.
Identifying solutions
As this emphasis on next-generation technologies further
complicates compliance, what steps should community
banks take to identify the right solutions? For one, they
can start with their core providers.
" Most core providers do also provide AML software, so
that could be something that the bank could research if
they haven't already, " Bass notes.
ICBA also recently launched its ThinkTECH Network
designed to help community banks connect with
emerging financial technology companies. This online
directory enables community bankers to find relevant
fintech companies and solutions through comprehensive
company profiles.
And even with expansive digital tools, experts agree that
banks should not rule out the value of old-fashioned peerto-peer
networking. " I am a strong believer in attending
" You can't keep doing
exactly what you did 10 years
ago, and 10 years from now,
you can't do exactly what
you're doing today, with or
without this guidance. "
-Karen Garrett, Stinson Leonard Street
events and training where the concept of what is current
is in the air, " Garrett recommends. " To know what other
people in your position have found useful is essential. "
Whatever the approach to identifying potential BSA and
AML innovations, community banks can't expect to be
able to rely solely on their current programs to take them
into the future.
" You can't keep doing exactly what you did 10 years
ago, and 10 years from now, you can't do exactly what
you're doing today, with or without this guidance, " Garrett
concludes.
Colleen Morrison is a writer in Virginia.
independentbanker.org Q 33
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Independent Banker - April 2019

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