U.S. Regulators Open the Door to Sharing Resources to Fight Money Laundering

Anti-money laundering (AML) compliance poses significant challenges for small and mid-sized U.S. banks. According to the UN Office on Drugs and Crime, the estimated amount of money laundered globally in one year is 2 - 5% of global GDP - $2 trillion in current US dollars. Regardless of size, all banks are burdened with high costs of regulatory compliance and the challenge of access to and retention of the necessary skills and technological expertise.

AML compliance related costs have increased by more than 50 percent over the past three years, while money launderers have grown ever more sophisticated and the costs of failure — in terms of reputational damage, regulatory fines and lost shareholder value — can be enormous for banks with inadequate defenses. 

A recent joint statementfrom several U.S. regulatory bodies, including the Federal Reserve, the Federal Deposit Insurance Corp., and the Treasury Department, could dramatically change the way that mid-size and community banks comply with money-laundering regulations. The statement encourages U.S. banks and credit unions to share resources for Bank Secrecy Act (BSA) and AML compliance purposes, helping them combat financial crime more efficiently and effectively. 

LINK: https://home.treasury.gov/news/press-releases/sm502?mod=article_inline

The announcement went largely under the radar, but it has significant implications for banks, particularly small to mid-sized institutions that have long been held to the same compliance standards as large banks, but without access to the resources available to large banks.

The statement discussed the use of collaborative arrangements “to pool human, technology or other resources to reduce costs, increase operational efficiencies, and leverage specialized expertise” and sent a clear signal to banks that regulators want them to use financial crime utilities and other shared resources to better combat financial crime. 

Financial crime utilities enable banks to create a shared ecosystem of resources executing services across a common platform.A shared ecosystem allows banks to distribute execution and technology costs, as well as reduce levels of duplicative investigations, decrease false positives through new innovative solutions and in the long term provide a method to trace activity across the network, creating anetwork of early warning signals.

Until recently, banks have been hesitant about participating in shared service offerings such as anti-crime utilities, partly due to a natural reluctance to move data to the cloud and partly due to uncertainty about how such collaborative arrangements would be looked upon by regulators. The regulators’ October 3^rdstatement — effectively blessing collaborative arrangements for smaller banks — clears up much of that uncertainty. The use of shared services such as utilities is becoming more common throughout the banking industry. Accenture’s recent global compliance research,“Comply & Demand,” indicated that 45 percent of banks and other financial services firms subscribe to managed services and industry utilities for fighting financial crime. 

A shared utility model can help level the playing field for mid-size banks, enabling them to leverage applied intelligence, analytics and resources at scaleand compete more effectively in today’s digital world. Thanks to the regulators’ clear policy statement, small- and mid-sized banks can keep compliance costs down while taking advantage of shared expertise and innovation in fighting financial crime.