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[12.23.06]
Networking arrangements for a bank's non-deposit investment
product offerings
To increase fee income and
provide customers with additional products and services, a bank may include in
its product-mix, non-deposit investment products (NDIPs). These products
include equities, bonds, fixed or variable annuities, mutual funds, etc. The
bank may distribute these products through a networking arrangement and/or
conduct the NDIP activity directly. In other words, a bank may have its
in-house NDIPs, and/or it may offer such products to its customers by entering
into a networking arrangement with a financial services corporation (e.g. a
registered broker/dealer, insurance company, etc.). For BSA/AML purposes, the
customer buying the NDIP offerings through the networking arrangement becomes a
customer of the financial services corporation, while continuing as a bank
customer for the traditional banking products and services.
The following table summarizes
the characteristics of—and the BSA/AML compliance responsibilities
associated with—three principal types of NDIP networking arrangements
(e.g. co-branded product, dual-employee, and third-party arrangement).
| Types |
Characteristics and BSA/AML Compliance
Responsibilities |
| Co-branded product arrangement |
Characteristics
- Offered by another company or financial
services corporation in co-sponsorship with the bank
- Product sold exclusively at that bank
and carries the name of the bank and the financial services company (e.g. a
mutual fund)
BSA/AML Compliance
Responsibility
- Because of this co-branded
relationship, the BSA/AML compliance responsibility becomes complex (e.g.
responsibility for CIP, CDD and suspicious activity monitoring and
reporting)
- The bank must understand each party's
contractual responsibilities and ensure adequate control by all parties
|
| Dual-employee arrangement |
Characteristics
- The bank and the financial services
corporation have a common (shared) employee who may conduct banking business as
well as sell NDIPs or sell NDIPs full time
- The bank retains responsibility over
the NDIP activities in a dual employee arrangement
BSA/AML Compliance
Responsibility
- A registered representatives (RR) may
be a dual employee of the bank and the broker/dealer
- When the dual employee is a RR
selling/buying NDIPs, the broker/dealer is responsible for monitoring the RR's
compliance with applicable securities laws and regulations applicable to the
NDIPs, the broker/dealer, and the customer
- However, the bank retains
responsibility over NDIP activities, even if contractual agreements establish
the financial services corporation as being responsible for BSA/AML compliance.
Therefore, the bank must ensure appropriate oversight and compliance with all
regulatory requirements
- When the dual employee is providing
bank products or services, the bank has the responsibility to monitor the
employee's compliance with BSA/AML related to those products and services
|
| Third-party arrangement |
Characteristics
- May involve leasing a bank's lobby
space to a financial services corporation to sell NDIPs
- In this case the third party must
differentiate itself from the bank
BSA/AML Compliance
Responsibility
- If appropriately implemented,
third-party arrangements do not affect the BSA/AML compliance requirements of
the bank
- The bank must ensure that the financial
services corporation has an adequate BSA/AML compliance program related to CDD
and suspicious activity detection and reporting
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Bank management must be aware of
the BSA/AML risks of NDIPs and develop appropriate policies and procedures to
mitigate such risks. Management must also review the financial services
corporation before entering into a networking arrangement with it. For example,
in the case of a networking arrangement with a broker/dealer the review may
include an assessment of the broker/dealer's financial status, management
experience, NASD registration status, reputation, and ability to fulfill its
BSA/AML compliance responsibilities related to the bank's customers.¹
Bascom Consulting, Inc.
has recently prepared BSA/AML policies and procedures for one bank with
deposit-broker relationships. In addition, it has assisted the client to
conduct EDD on these deposit/brokers. For additional information on NDIPs and
the relevant BSA/AML compliance program, contact Dr. Bascom, principal
consultant at Bascom Consulting, Inc. at
WOBascom@bascomconsulting.com.
¹ For additional
information see FFIEC BSA/AML InfoBase, Non-deposit Investment
Products-Overview,
www.occ.treas.gov/BSA/pages_manual/OLM_071.htm. This article
is based on that overview. |
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[12.05.06]
Independent review & testing for BSA/AML
compliance
By using the words "independent
testing" and "independent audit" interchangeably, financial services
professionals might have engendered the position that a recognized auditing
firm must perform the independent testing of an institution's BSA/AML
compliance condition.
Undoubtedly, the professional
auditor trained in observing the efficiency of an institution's financial
procedures, accounting systems, internal financial controls and overall
administration and management, may be able to conduct the required testing for
BSA/AML compliance. However, the professional competence of this auditor may
have to be reinforced by such other attributes as his or her:
- Working knowledge of the requirements of the
Bank Secrecy Act and its implementing regulations
- Ability to evaluate the money
laundering/terrorist financing risks associated with the institution's
products, services, customer base and geography
- Hands-on experience in identifying unusual
transactions or suspicious activities not otherwise detected by the
institution's transactions monitoring/internal control systems.
It is instructive to note that
any reference to an independent testing for or an independent audit of an
institution's BSA/AML program does not mean that a specifically designated
auditor must perform the review and testing. The FFIEC BSA/AML Examination
Manual states that:
"The federal
banking agencies' reference to "audit" does not confer an expectation that the
required independent testing must be performed by a specifically designated
auditor, whether internal or external. However, the person performing the
independent testing must not be involved in any part of the bank's BSA/AML
compliance program. The findings should be reported directly to the board of
directors or an audit committee composed primarily or completely of outside
directors." (FFIEC BSA/AML Examination Manual, p.12)
Bascom Consulting Inc.
professionals, with training and experience in bank regulation and supervision,
bank management and operations, and financial institutions' BSA/AML and other
compliance areas, have conducted independent testing for compliance for banks
and money services businesses. In the review and testing process, they have
applied statistical sampling techniques, assessed the institutions' internal
controls and all other components of their BSA/AML risk-based programs,
provided an overall rating of the institutions' compliance condition, and
presented the findings to the institutions' board of directors by way of a
comprehensive report and detailed discussions.
Additional information on
independent testing for BSA/AML compliance may be obtained by contacting Dr.
Wilbert O. Bascom, principal consultant at Bascom Consulting, Inc. at
WOBascom@bascomconsulting.com.
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[12.05.06]
Firm launches online presence
Bascom Consulting, Inc., a
consulting firm based in Miami, Florida which offers comprehensive compliance
programs to financial companies, today announced the launch of its website
located at http://www.bascomconsulting.com.
The new online presence, which
went into production on December 4, 2006, provides an overview of the firm and
its core capabilities and succinctly presents credentials for some of the
firm's key professionals. Additionally, the site includes a suite of relevant
Bank Secrecy Act - Anti-Money Laundering/Anti-Terrorist Financing (BSA/AML)
resources and allows clients and site visitors at large to link directly to
important state, federal and international organizations related to this
industry.
The site design and development
effort includes a new and improved corporate identity for Bascom Consulting,
Inc., which has been incorporated into its new website. Feedback gathered from
usability testing delineates the site as having a crisp interface, simple
navigation, and presenting content in a very clean and structured style.
Bascom Consulting, Inc. plans to
have its online presence evolve in response to the constantly changing
compliance and regulatory environment. To this end, it will continuously
evaluate existing site content for relevancy and will be adding new resources,
announcements and articles accordingly.
The firm encourages its clients
and visitors to visit the website and provide feedback on its general
presentation and usefulness.
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