Treasury's Commonsense Turn-around on Anti-money Laundering

By Maria Bruno-Britz

Last week, it was revealed that Treasury Secretary Henry Paulson is going to push for a more balanced approach to anti-money laundering compliance for smaller financial institutions. A document released by the Treasury Department states that not all financial services providers are subject to the same kinds and degree of risk. Therefore, matching risk-based examination to risk-based obligations should become the norm as smaller FIs and money service bureaus (MSBs) seek to comply with Bank Secrecy Act (BSA) regulations going forward.The move has been applauded by the financial services industry, from the Independent Community Bankers of America (ICBA) to the American Bankers Association. "[The] announcement is a welcome initiative in reducing the disproportional regulatory burden facing community banks while still safeguarding our nation's security," said Karen Thomas, executive vice president and director of Government Relations of the ICBA, in a statement.

According to Aite Group analyst Eva Weber, "This is good news... Small banks have struggled to find adequate human and technology resources to address compliance issues, and the evolution of the BSA to address money laundering has only made that struggle worse. Treasury Secretary Paulson's reference to a commonsense approach is exactly what the industry has been asking for."

Weber does caution, however, that the industry may not see any of the proposed changes for another year, so small banks and money service bureaus will have to continue to "scrape by" for a little while more.

There's no doubt that the financial services industry is a very regulated one. We do live in a world where both the opportunities and risks are great. Therefore, it is important to safeguard how and with whom banks conduct their business as much as possible. However, it is always prudent to do so with an eye on the ability of those affected by a given regulation to follow through. It's the same balancing act that is found in the security space-some transactions are more high risk than others and require an additional step of authentication beyond user name and password. So too in the AML space-although it is vital to keep track of transactions, not all transactions are as risky as others and not all institutions are as prone to high risk transactions as others. As long as Treasury's new position on AML tracking manages to maintain a high degree of integrity at all levels, the industry can only stand to benefit from the changes. Resource allocation is important to all organizations-especially the smallest ones. However, to draw yet another parallel to the security space, will money launderers perceive small banks as an easier target once the reduced AML requirements are introduced? After all, once security it tightened in one channel or geographic region, criminals always seek out the next weakest link to continue their dirty business.