Services | Projects

Model Validations

The AML/OFAC/Fraud environment continues to evolve as regulatory changes and an increased focus on quantitative models are driving the need for model validations.

Arc-Serv’s approach is unique in that we don’t just criticize your BSA/AML program, we make meaningful recommendations to improve your program and its results. After all, the ultimate goal of a suspicious activity program is to find and report suspicious activity.

Suspicious activity monitoring systems empower institutions to monitor their accounts’ transactional behavior systemically. Anti-money laundering (AML) models rely on skilled judgment coupled with sophisticated scoring algorithms and have other quantitatively derived components. Examiners recommend in the FFIEC AML Examination Manual that the rules and parameters of your AML monitoring programs should be periodically and independently reviewed to ensure your program addresses the risk at your institution.

  • With the constant evolvement of new money laundering trends along with new regulatory requirements, it is critical to re-evaluate the effectiveness of your anti-money laundering programs on a regular basis. And, as public and regulatory expectations increase, it is even more important that BSA/AML professionals can rely on the systems they use to identify suspicious activity.
  • Not all alerts/cases will result in a suspicious activity report filing, so it becomes difficult to evaluate or tune the effectiveness of the rules and scenarios based solely on the alert to SAR ratio. A thorough scenario tuning process, coupled with strong subject-matter expertise, will ensure your institution’s monitoring systems are effective and sustainable by combining both analytics and an expert judgment approach.
  • Validation involves a degree of independence from model development and use. Arc-Serv is an independent consulting firm with consultants who have over 35 years’ experience in the industry. Arc-Serv validations have successfully been through regulatory scrutiny.
  • Effective validation helps ensure that models are sound. It also identifies potential limitations and assumptions and assesses their possible impact. Arc-Serv will review to ensure the parameters of your rules in your model are successful in identifying suspicious activity without creating excessive noise.
  • The rigor and sophistication of validation should be commensurate with the bank’s overall use of models, the complexity and materiality of its models, and the size and complexity of the bank’s operations.
  • BSA/AML Model Validation includes various components. Most model validations can be broken into three main projects (although institutions may customize the project to fit their needs).
    • The three main project components are:
    • Program Evaluation
    • Transaction Testing (testing of the parameter algorithms)
    • Data Integrity Review

Depending on the size, risk, and needs of an institution, they may request Arc-Serv to perform any of the various components. The validation teams at Arc-Serv will identify weaknesses and rigorously support conclusions regarding the acceptability of model results.

Please reach out to us at 818-566-9821 or email us on the “Contact Us” page to learn more.

 

Cannabis Banking Risk Management

Even if you don’t bank marijuana businesses or related businesses, you still need a cannabis risk management policy.

There are many different variables to consider:

  • Marijuana versus hemp versus CBD
  • Growers/farmers, transporters, processors, retail and wholesale owners, employees, firms who do business with CRBs and other ancillary entities
  • Federal versus state versus county/city/town laws, regulations and licenses

 Your policy should detail:

  • What you will and will not bank
  • What you will do to ensure you are not opening accounts that violate your policy
  • What to do if you identify an existing account that violates your policy
  • When you will file a SAR
  • How you will monitor accounts in accordance with your policy
  • When you will close an account

Arc-Serv, along with our strategic business partners, provides comprehensive and ongoing Cannabis Banking Risk Management Services that will:

  • Build and maintain your Cannabis Banking Risk Management policies and procedures
  • Create new account due diligence forms
  • Provide due diligence investigations on CRBs that apply to open an account
  • Provide ongoing enhanced due diligence on your CRB accounts, including site visits
  • Prepare necessary CTR/SAR filings
  • Provide software interfaces for continuous due diligence monitoring

Arc-Serv provides Model Validations, Risk Assessments, Staffing Assessments, Enforcement Action Remediation, and can provide other services that can help with the management of your BSA/AML/OFAC/fraud-related projects. Additionally, we offer implementation of compliance solutions such as AML system optimization, training, gap analysis, new vendor due diligence, merger/acquisition project management, system calibration, and other customized consulting projects.

Please reach out to us at 818-566-9821 or email us on the “Contact Us” page to learn more.

 

Risk Assessments

The foundation of any good BSA/AML compliance program is the institution’s risk assessment. Recent enforcement actions cite weak risk assessments as an instigating factor.

The current environment stresses a culture of compliance, and regulators mandate that financial institutions have a solid, efficient risk-based BSA/AML program in place.

Your BSA/AML program needs to evolve as your institution introduces new products and services, modifies existing products and services, and expands through additional subsidiaries, mergers, and acquisitions. New technology and industry trends also need to be considered.

Understanding your risk profile enables your institution to apply appropriate risk management processes to your BSA/AML compliance program to reduce liabilities. The process enables management to better identify and mitigate gaps in your institution’s controls.

Auditors and examiners will review your BSA/AML Risk Assessment along with your policies and procedures to determine whether the BSA/AML compliance program is adequate and provides the controls necessary to diminish exposure.

The Risk Assessment process should:

  • Tell the story of the risk profile at your institution and be easy to understand
  • Identify specific risk categories
  • Include a detailed analysis of data identified to evaluate the risk within identified risk categories (Quantitative/Qualitative)
  • Identify inherent risk, mitigating controls with the resulting residual risk
  • Be updated on a regular basis 

The highly qualified staff at Arc-Serv has the art of a thorough and detailed risk assessment down to a science.

Please reach out to us at 818-566-9821 or email us on the “Contact Us” page to learn more.

 

Data Integrity Reviews

It is imperative to demonstrate to examiners that you understand the data flowing into your BSA/AML/Fraud systems. Garbage in – garbage out. You need to be able to count on this data to find suspicious activity.

With the evolution of transaction monitoring, the required transparency of the data to support those technologies has increased. Even the best-designed systems may be ineffective due to data quality issues.

An institution that has recently had a major system conversion/update, a merger, or an acquisition, should revisit the data being imported into their BSA/AML suspicious activity monitoring systems. BSA/AML Model Validation includes various components, and the data integrity review may be conducted independently as needed.

Most institutions obtain the data for their AML/BSA monitoring systems from multiple data sources, so to perform the required validation, multiple sets of data must be analyzed.

Data integrity review process should also include:

  • Transaction comparison between data importing into AML system and original data sources.
  • Determination as to whether the transaction code mapping between the source system(s) and the software includes all codes relevant to AML monitoring, are mapped appropriately and is there proper rationale supporting the inclusions or exclusions of transaction codes in the mapping process.
  • Ensuring transaction and customer data are being transferred from all critical applications to the AML monitoring system completely and accurately so that it could provide for the timely identification of potentially unusual or suspicious activities.
  • A comparison of the AML system data to core data and identified reasoning for any differences.
  • A test of the accuracy and descriptiveness of data at the transaction level with a judgmental selection of transactions based on the most recent risk assessment.
  • Ascertaining if the institution has an established and documented process to identify, track, and resolve data import errors from all critical systems to the AML monitoring system.

The validation teams at Arc-Serv will pinpoint weaknesses and rigorously support conclusions regarding the acceptability of the data importing into the BSA/AML model.

Please reach out to us at 818-566-9821 or email us on the “Contact Us” page to learn more.

 

Staffing Assessments

Recent government actions have faulted financial institutions for having insufficient staffing to adequately review suspicious activity. It is crucial to periodically assess the adequacy of your AML resources to assure it is commensurate with your risk.

Whether you need a staffing assessment, an efficiency review or a combination of both, Arc-Serv will customize the project to service your needs without providing cookie-cutter solutions.

It is critical that management periodically assess the adequacy of its resources to assure it is commensurate with the risk.

  • Increased examiner findings do not mean that all institutions must boost the number of staff and increase staff salaries. However, it is crucial for an institution to have adequate staffing that corresponds to the risk profile of its customer base and activity.
  • Many recent cases have demonstrated that a financial institution must thoughtfully evaluate the adequacy of resources available to the AML department. Where requests are made for increases in AML staffing, salary or technology, officers, and directors should ensure that such requests are properly evaluated and appropriately documented.
  • Examiners will be considering whether or not the institution is sufficiently staffed for their overall risk level, size, and fraud/compliance needs. In addition, they will be trying to ensure that staff is given adequate time to execute all duties without conflict of interest.

Arc-Serv’s ultimate goal is to help your institution understand your operational capabilities to achieve a truly sustainable risk program through a robust staffing assessment. 

The aim of a strong program efficiency analysis will be to ensure that institution has adequate staffing, experience, and resources to successfully and efficiently complete all the required tasks to support the institution’s department objectives.

A staffing assessment should:

  • Be forward-looking to ensure that the institution has sufficient staffing to handle any anticipated growth and expansion plans.
  • Assist the institution in determining its current task transaction volume averages, processes and procedures, and if it is staffed adequately to complete any existing backlogs while still completing all the other required functions and tasks.
  • Adequately detail the staffing needs in the current environment at the institution in order to complete to meet all required tasks and allow the department full coverage during vacations or increased/growing demands.
  • Include experience and knowledge of current staff to establish if there are any knowledge gaps or training needs to ensure institution has appropriate level of experience to maintain an adequate BSA/AML program.
  • Evaluate the effectiveness of the department including best practice recommendations.

Please reach out to us at 818-566-9821 or email us on the “Contact Us” page to learn more.

 

Policy & Procedure Reviews

Countless consent orders and enforcement actions list weak policies and procedures as the major cause leading up to a pillar violation. Changing regulatory environment makes it critical to strengthen your current program.

Almost every enforcement action cites the need for strengthening policies and procedures. Arc-Serv has successfully assisted dozens of organizations with customized policies and procedures that pass audit/exam scrutiny.

The current environment stresses a “Culture of Compliance”, and regulators mandate that financial institutions have a solid, strong BSA/AML program in place.

  • Weak policies and procedures lead to weak internal controls that subsequently might lead to pillar violations and enforcement actions. It is critical to maintain strong comprehensive policies and detailed procedures.
  • Your BSA/AML program needs to evolve as your institution introduces new products and services, modifies existing products and services, and expands through additional subsidiaries, mergers, and acquisitions. New regulations, technology, and industry trends also need to be considered.
  • With the rising cost of compliance services – data issues, operational issues, escalating regulatory requirements, and staff turnover – all combine to make a compliance program difficult to execute consistently.

Here at Arc-Serv, we have been in your shoes and have experience writing detailed policies and procedures (NOT COOKIE CUTTER). Our highly-trained subject matter experts will review your current program, make recommendations, and deliver strong, comprehensive results that will please your auditors and examiners.

Please reach out to us at 818-566-9821 or email us on the “Contact Us” page to learn more.

 

Enforcement Action Remediation

A recent trend has occurred as of late of enforcement actions being followed by severe monetary penalties. However, deficiencies in your BSA/AML/OFAC programs do not always have to result in penalties.

When the going gets tough, Arc-Serv has the expertise and confidence to relieve stress caused by examiner criticisms and enforcement actions.

Recent trends of enforcement actions being followed by severe monetary penalties are making many in our industry anxious. However, deficiencies in your BSA/AML/OFAC programs do not always have to result in penalties. Whether you have recently received an enforcement action or just severe criticisms from your auditors or examiners, responding to supervisory criticisms of an AML program should be a top priority.

Our regulators have signaled that AML enforcement remains a top priority. Disapproval of your compliance program – whether communicated informally during the examination/audit, in the exit meeting, or formally through written findings – must be properly escalated to management and the Board of Directors. Failure to act may subject your institution to continued censures, enforcement risk and/or monetary penalties.

Arc-Serv has successfully helped several institutions resolve enforcement actions and criticisms from examiners.

Subject matter experts from Arc-Serv can manage your remediation projects from start to finish. Please reach out to us at 818-566-9821 or email us on the “Contact Us” page to learn more.

Not seeing what you're looking for?

Arc-Serv can provide many other services that can help with the management of your BSA / AML / OFAC / Fraud-related projects and in the implementation of compliance solutions such as AML system customization, training, gap analysis, new vendor due diligence, system calibration, and other customized consulting projects. If you don’t see what you’re looking for, reach out to us for a personalized quote at 818-566-9821 or by email by filling out the form below.

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