The Financial Crimes Enforcement Network (FinCEN) has issued a consent order imposing a substantial $15 million penalty on Shinhan Bank. This action comes as a reminder of the challenges posed by anti-money laundering (AML) compliance and the role of vendors providing AML monitoring products.
The consent order emphasizes a growing concern within the industry - the lack of accountability for AML system vendors. Financial institutions often face penalties and regulatory scrutiny for AML deficiencies, while vendors selling AML monitoring solutions seem to evade consequences.
The order highlights several critical issues and best practices:
Uniform Weighting of Risk Factors: Financial institutions are cautioned against using the same weighting for all risk factors when assessing customer risk rating. The importance of customizing risk assessments is underscored.
Customer-Level Risk Designation: The order recommends designating risk at the customer level rather than solely at the account level. This shift can lead to more effective risk management practices.
Timely Suspicious Activity Report (SAR) Submissions: Delays in SAR submissions can hinder law enforcement's ability to take prompt action. Financial institutions are reminded of the significance of timely reporting.
Resource Allocation: Adequate staffing and resources for Bank Secrecy Act (BSA) and AML functions are crucial. Understaffing can result in penalties and compliance failures.
Vendor Accountability: The order raises a significant concern about the lack of penalties and accountability for AML system vendors. While financial institutions face regulatory repercussions, vendors continue to market their products without facing consequences for system deficiencies.
The order also provides practical examples of missed suspicious activities that apply to various financial institutions, regardless of their size.
Additionally, it's worth noting that the parent bank had to inject $50 million to enable Shinhan Bank to fully remediate issues stemming from previous regulatory orders, highlighting the high costs associated with AML compliance failures.
In conclusion, the consent order serves as a clear message to both financial institutions and AML system vendors. Institutions should prioritize compliance efforts and address deficiencies promptly to avoid escalating penalties. Simultaneously, there is a growing call for increased accountability and penalties for AML system vendors to ensure the effectiveness of AML solutions and protect the financial system from illicit activities.
By fLEXI tEAM