BISA Magazine - Quarter 4, 2017 - 24

COMPLIANCE & REGULATORY WATCH

T

he Offices of the Comptroller of the Currency and
the Federal Reserve have
both issued guidance on
Model Risk Management.
The supervisory guidance applies to all
quantitative models used in a banking
organization. Such models are widely
used within AML compliance groups
and are primarily implemented through
the AML software solutions but also
through spreadsheets and other tools.
A key aspect of Model Risk Management is a robust validation process.
The validation process employed by
AML compliance groups has received
increasing attention from regulators,
leaving some banks unprepared for the
level of regulatory review. This article
provides real-world insights and guidance on the issues related to the AML
compliance model validation.

Overview

AML Model
Validation:
Beyond the
Guidance
By Salvatore Cangialosi, Partner, ACA Telavance

SR Letter 11-7 from April 4, 2011,
provides revised and comprehensive
guidance on Model Risk Management.
The guidance addresses Model Validation and is meant to assure that the
proper models are chosen, they operate
correctly and the implementation and
use of the models are appropriate for
the risk of the bank.
The primary models used by most
banks include: AML and Suspicious activity detection scenarios, customer risk
rating and OFAC/Sanctions Algorithms.
These models must be validated by all
banks independent of the developers
and users of the models and performed
by an internal group such as audit
or by third party consultants having
adequate expertise, but the bank is
responsible for overseeing the thirdparty results.

Recent Trends
AML compliance examinations are
increasing in scope and complexity.
Findings are becoming more difficult
to address while the risk of enforce-

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Table of Contents for the Digital Edition of BISA Magazine - Quarter 4, 2017
