• What Are the Four Pillars of Bank Secrecy Act (BSA) Compliance?
  • April 26, 2006
  • Law Firm: Holland & Knight LLP - Tampa Office
  • 1. Internal policies and controls tailored to the risks facing the particular institution

    2. A compliance officer and team dedicated to compliance

    3. Independent auditing and testing to make sure the internal policies and controls are working

    4. Ongoing training of all bank personnel

    These four pillars of compliance are just the starting point for a bank that needs to meet the increasingly rigorous standards set by bank examiners.

    Examinations now focus on effective implementation of a bank's policies, practices and procedures. Banks must ensure that their risk assessment is effective and tailored to their products, services, customers and markets. Moreover, examiners now expect a culture of compliance to permeate a bank's policies and systems and to be understood and carried out by all bank personnel -- from executive officers to frontline employees such as tellers and loan officers.

    Know Your Customers and Know Your Regulators

    Fundamentally, a bank must know what funds flow through it. That means knowing each of its customers, and, in some cases, knowing its customers' customers. Because no system is foolproof, it is critically important to maintain strong, effective working relationships with the bank's regulators to resolve problems that inevitably will arise. A proactive approach to managing relationships with regulators will go a long way to safeguard the bank's regulatory and reputation risk from BSA compliance deficiencies. Each bank should manage the relationships with its regulators proactively, to ensure that its individual circumstances are taken into account.

    Board of Directors and Officer Accountability

    A bank's board of directors has fiduciary responsibilities, beyond supervising bank management, to proactively ensure that the bank has an effective BSA compliance program. As a result, the board is directly accountable for compliance failures. Board accountability was highlighted recently by the Office of the Comptroller of the Currency in an enforcement action against KeyBank. In that order, the board was mentioned more than 30 times and required explicitly to take a number of initiatives to implement an effective BSA compliance program. Consequently, every bank board must understand its BSA responsibilities, both to ensure that the bank fulfills its obligations and to protect itself from legal sanction or liability.

    New BSA Compliance Reference Guide

    The Illinois Institute of Continuing Legal Education recently published a reference guide, prepared by the author of this article, entitled "Complying with Bank Secrecy Act/USA PATRIOT Act/Anti-Money Laundering Requirements," which appears in Chapter 22 of the 2006 Edition of Advising Illinois Financial Institutions. The guide is a handy tool for understanding the essential BSA requirements, providing practical tips for implementation, and identifying additional resources.