Are Banks Implementing BSA Risk Based Adjustments related to COVID-19 circumstances?

The Office of the Comptroller of the Currency (OCC) Semiannual Risk Perspective Report highlights how the Covid-19 Pandemic has elevated  operational risks for banks as they are challenged with the implementation of new processes/procedures, business continuity plans and a steep increase in cyber fraud and risk. 

OCC Report states that Compliance Risk is increasing

The Report states that Bank employees working remotely coupled with reduced operations and an ever-changing customer service dynamic have compromised a Bank’s ability to:

• Fully and accurately implement bank policies to fulfill Bank Secrecy Act (BSA) requirements.
• Fulfill fair lending and consumer protection requirements.   
• Properly underwrite and open new accounts.
• Monitor customer activity.
• Communicate with customers.
• Meet Office of Foreign Assets Control (OFAC) reporting requirements.
• Respond to increased fraud and cyber risk.
• Respond to high call volumes.
• Train staff that has been reassigned to implement new practices and procedures.
• Properly manage past due loans and provisions for loan losses. 

The OCC recognizes that pandemic response measures and programs may affect timely compliance with bank BSA programs and OFAC-administered sanctions obligations  

Examples provided by the Report are on-boarding processes, customer due diligence updates, suspicious activity alert investigations, and blocking reports.   The OCC encourages Banks to “monitor information provided by law enforcement agencies and international anti-money laundering standard-setting organizations regarding the ways that criminals are adapting scams and money laundering techniques to exploit vulnerabilities created by the pandemic”.   

Banks should implement appropriate risk-based adjustments to their BSA systems 

Based on COVID-19-related circumstances, Banks ought to keep Examiners updated on potential BSA and sanctions compliance issues.  This includes delays with meeting regulatory reporting requirements. If there are “temporary waivers”, a tracking and management system needs to be implemented so that a Bank can readjust its systems after the operating environment has returned to normal.

The Covid-19 Pandemic and the accompanying reduction in economic activity has been a rationale for Banks to re-analyze their budgets for compliance training and education.  Not considering the risk-associated dangers resulting from compliance cost-cutting could be a serious mistake.  Cutting compliance costs, may pose a significant risk to a Bank’s ability to manage financial regulatory oversight.

Given the current uncertain and volatile environment, a Bank’s risk assessment process is critical to an effective well-designed compliance program. Banks ought to reinforce and update all compliance efforts, policies, and procedures.  Employee training and regular tested continuing education to mitigate risks is imperative. 

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