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Busyness leads to bad business. Financial crime compliance and its associated technology continue to drive recent regulatory enforcement actions that encourage innovation to boost efficiency and effectiveness. However, using models that are not fit-for-purpose rack up additional costs and waste limited resources, exacerbating the very problem they aim to solve. Model Validations are key to moving you from the theoretical to operational, using a data driven approach to focus teams on what matters and saving squandered exploratory effort. As the recent Fincen Files story demonstrates, the continuous balance between improving the performance of your AML and sanctions systems with regulatory expectations to file meaningful Suspicious Activity Reports (“SARs”) has never been more front of mind.
Whether required by regulation or as a matter of good business practice, many banks worldwide already conduct annual AML and sanctions risk assessments. Properly performed risk assessments are critical for giving banks an objective and full understanding of their inherent risk exposure and evaluation of the effectiveness of their control framework to mitigate identified risks.
Since the 2011 publication of FRB/OCC SR 11-7 Model Risk Management Guidance, US banks and most global banks have further developed increasingly sophisticated programs for assessing the comprehensiveness, fitness-for-purpose and operational effectiveness of the models they employ to manage business risks. Some of these risks are managed through AML– and sanction-related models comprised of transaction monitoring scenarios, customer risk rating processes and sanctions screening system logics.
