Western Banker - July/August 2016 - (Page 10)

The Fifth Pillar: Continuing Expansion of KYC By Celeste Burton he Financial Actions Task Force on Money Laundering determined that the majority of funds used to finance terrorist activities flows through financial institutions, prompting an expanded view of the money laundering threat to include terrorist financing through both a regulatory and legislative lens. Unlike money laundering that involves hiding the source and destination of illegally obtained funds, terrorist activities are orchestrated using funds that may also be obtained legally. Federal law requires each financial institution to establish and maintain a BSA/AML compliance program that provides for the following minimum requirements (also referred to as "Pillars") as outlined in Part 326.8 of FDIC Rules and Regulations: * Designation of a BSA Compliance Officer * Development of internal policies, procedures, and controls 10 www.wib.org Western Banker * Ongoing, relevant training of employees * Independent testing and review In addition, the Patriot Act requires financial institutions to establish a Customer Identification Program, which must include risk-based procedures that enable the institution to form a "reasonable belief" that it "knows the true identity of its customers" - also referred to as the "Fifth Pillar". There is a familiar saying attributed to Mr. Vince Lombardi, the legendary 20th century Green Bay Packers coach, that "the best defense is a good offense". A critical component of a financial institution's "offense" when it comes to terrorism is the Fifth Pillar, which was derived in part from traditional Know Your Customer (KYC) requirements which encompass Customer Due Diligence (CDD), the Customer Information Program (CIP), and Enhanced Due Diligence (EDD). FinCEN enacted the Fifth Pillar to clarify and strengthen CDD requirements under the Bank Secrecy Act, and identified four core Fifth Pillar elements as being critical for an effective BSA/AML Program: * Identifying and verifying the identity of customers * Identifying and verifying the beneficial owners of legal entity customers * Understanding the nature and purpose of customer relationships * Conducting ongoing monitoring to maintain and update customer information and identify and report suspicious transactions Utilizing these core elements can significantly reduce the level of regulatory scrutiny that financial institutions endure while concurrently supporting law enforcement efforts to stay in front of potential threats to national security. AuditOne LLC has conducted a review of 60 financial institutions to determine BSA examination hotspots, the results of which supported the intensifying focus on http://www.wib.org

Table of Contents for the Digital Edition of Western Banker - July/August 2016

A Message from the President & CEO
From Front-End Ratings to Ongoing Risk Analysis to Rating Migration
The Fifth Pillar: Continuing Expansion of KYC
Turning Compliance Overhead Into a Competitive Advantage
Getting Started With Third-Party Risk Management: Two Key Questions
Four Steps to Winning the Vendor Management Battle
Douglass M. Eberhardt, WIB Community Banker of the Year
Regulatory Hot Topics
Professional Development
Welcome New Members
Product and Services Directory
Index of Advertisers

Western Banker - July/August 2016

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