As regulations continually change, financial institutions must stay ahead to ensure compliance and protect their operations. This article explores several pivotal developments within the Bank Secrecy Act (BSA) sphere, including cutting-edge advancements in artificial intelligence (AI) for BSA monitoring, the rollout of the Beneficial Ownership Registry, and new proposed regulations for investment advisors. These topics are not just trending—they are reshaping how financial institutions detect and prevent financial crimes.
Artificial Intelligence (AI) in BSA Monitoring Model Software
The integration of artificial intelligence (AI) into BSA monitoring model software is revolutionizing how financial institutions detect and prevent illicit activities. Traditionally, BSA models have relied on “supervised learning,” which involves using predefined target variables to monitor customer activity. This method applies a standard set of variables across the board for monitoring purposes.
However, the landscape is shifting towards “unsupervised learning.” This advanced approach enhances monitoring by identifying patterns and anomalies in customer behavior without predefined targets. By leveraging unsupervised learning, financial institutions can more effectively detect unusual activities, providing a higher level of scrutiny and protection against potential money laundering and other financial crimes.
As transaction monitoring evolves, the accuracy and coding of data become increasingly critical. Periodic validation of BSA monitoring systems by third parties, especially after significant changes, is essential to ensure their effectiveness and compliance with regulatory standards.
Beneficial Ownership Registry
The introduction of the Beneficial Ownership Registry represents a significant shift in the regulatory environment for businesses. Under this new mandate, nearly all companies required to file with the state to conduct business will need to report detailed ownership information. While exemptions exist for banks, credit unions, publicly traded companies, and a few others, the majority of businesses will be impacted. Key deadlines for compliance are as follows:
- Businesses established before January 1, 2024, must begin reporting in 2025.
- Businesses started in 2024 will have 90 days to report their information.
- Businesses established after January 1, 2025, will have 30 days to report.
Although specific penalties for non-compliance have not yet been determined, it is anticipated that both civil and criminal penalties may be enforced. Financial institutions will eventually gain access to the registry, further aiding their BSA monitoring efforts by providing additional layers of ownership transparency.
Proposed Rule for Investment Advisors
A proposed rule aims to expand the definition of “financial institutions” to include investment advisors, bringing them under the purview of BSA regulations. If enacted, investment advisors will be required to implement comprehensive anti-money laundering (AML) and counter-financing of terrorism (CFT) programs. This includes:
- Filing Suspicious Activity Reports (SARs)
- Retaining funds transmission records
- Reviewing high-risk customers
- Meeting customer identification requirements
The inclusion of investment advisors in the BSA framework underscores the importance of a robust and all-encompassing approach to combating financial crimes. This proposed rule seeks to close existing gaps and ensure that all financial entities uphold stringent AML/CFT standards.
Ensuring Compliance
Staying ahead of these hot topics within the BSA domain is crucial for financial institutions aiming to safeguard their operations and protect against financial crimes. By leveraging advanced AI technologies, adhering to new regulatory mandates, and preparing for expanded oversight, institutions can enhance their compliance efforts and contribute to a safer financial ecosystem.
At TBG, we understand the complexities and challenges of maintaining BSA compliance. Our Internal Audit (IA) Team is equipped to conduct thorough BSA audits and BSA model validations, ensuring that your institution remains compliant with the latest regulatory requirements and best practices.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
