Bank Secrecy Act: Examiners Need More Information on How to Assess Banks' Compliance Controls for Money Transmitter Accounts
Fast Facts
To fight money laundering and other crimes, the Bank Secrecy Act requires banks to verify customers’ identities and report suspicious activities. We looked at federal oversight of banks’ compliance with these requirements—particularly when banks’ customers are money transmitting businesses.
Some federal bank examiners were unclear about how much due diligence they should expect from banks’ site visits and reviews of their money transmitter customers.
We recommended that banking regulators update examination procedures, provide examiner training, or take other steps to improve evaluation of banks’ compliance.
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Highlights
What GAO Found
From 2014 through 2016, 40 of 86 banks with money transmitter customers that responded to GAO's survey indicated they terminated at least one money transmitter account for money-laundering-related reasons. Money transmitters transfer money for their customers to recipients domestically or internationally. Common reasons given for terminating accounts included the customer not providing information needed to satisfy the banks' due diligence requirements under Bank Secrecy Act (BSA)/anti-money laundering (AML) regulations and that the cost of BSA/AML compliance made these customers unprofitable. However, banks also cited concerns that these customers drew heightened regulatory oversight; this may indicate “derisking,” the practice of banks limiting services or closing accounts with customers to avoid any perceived regulatory concerns about facilitating money laundering.
Federal bank examiners in some of GAO's discussion groups identified challenges in assessing banks' compliance with due diligence requirements. In 2005, the Department of the Treasury's (Treasury) Financial Crimes Enforcement Network (FinCEN) and the federal banking regulators issued interagency interpretive guidance to clarify BSA/AML requirements and supervisory expectations for banks providing banking services to money transmitters. The guidance was incorporated in the Federal Financial Institutions Examination Council BSA/AML examination manual. However, examiners from some discussion groups said it was unclear how much due diligence is reasonable to expect banks to conduct for their money transmitter customers. For example, while the manual's examination guidance pertaining to money transmitters states that due diligence on higher-risk accounts can include reviewing the money transmitter's BSA/AML compliance program or conducting on-site visits, the related examination procedures do not clarify what these reviews or visits might entail. Unless federal banking regulators take steps to improve examiners' ability to evaluate banks' compliance with BSA/AML requirements as applied to money transmitter accounts, examiners may not be fully achieving examination objectives.
In response to derisking concerns associated with money transmitters, FinCEN and the federal banking regulators have issued general guidance that discourages banks from terminating accounts with any particular customer type without evaluating individual customers' risks. In prior work, GAO noted that regulators had not fully evaluated how banks' regulatory concerns may be influencing decisions to derisk. GAO recommended that FinCEN and the federal banking regulators conduct a retrospective review of BSA regulations and their implementation, with a focus on how banks' regulatory concerns may affect their decisions to provide services. According to federal banking regulators and FinCEN, they and Treasury established an interagency working group in early 2018 that they believe will address the recommendation. The working group has taken important steps toward improving the efficiency and effectiveness of BSA/AML supervision, including issuing an interagency statement intended to improve the transparency of the risk-focused approach examiners use to plan and conduct BSA examinations. However, the working group has not yet evaluated the full range of factors that may influence banks to derisk.
Why GAO Did This Study
The World Bank and others have reported that some money transmitters have been losing access to banking services. Money transmitters play an important role in the financial system, in part because they provide financial services to people less likely to use traditional banking services. GAO was asked to review the causes and potential effects of derisking by banks.
This report examines, among other issues, (1) the extent to which banks are terminating or limiting services for money transmitters, (2) challenges in assessing banks' BSA/AML compliance related to money transmitters, and (3) regulators' actions to address derisking concerns.
GAO reviewed bank examination reports and documents, held eight discussion groups with federal bank examiners, surveyed a nationally representative sample of 406 banks (excluding credit unions), and interviewed federal and bank officials, money transmitters, industry associations, and other stakeholders.
Recommendations
GAO is making a total of four recommendations to the federal banking regulators that each regulator improve examiners' ability to evaluate banks' BSA/AML compliance as applied to money transmitter accounts. The federal banking regulators agreed with GAO's recommendations.
GAO also reiterates its recommendation in GAO-18-263 that FinCEN and the federal banking regulators conduct a retrospective review of BSA regulations and implementation.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Federal Reserve System | The Board of Governors of the Federal Reserve System should, in coordination with the other federal banking regulators, and with input from BSA/AML examiners and other relevant stakeholders, take steps to improve examiners' ability to evaluate the effectiveness of banks' BSA/AML compliance controls with respect to money transmitter accounts. Steps may include providing updates to examination procedures, examiner training, or a combination of methods. (Recommendation 1) |
In September 2020, the Federal Reserve provided training to its BSA examiners on money services businesses that included a focus on assessing banks' BSA/AML compliance controls for money transmitters using the risk-based supervisory approach. This training should help improve Federal Reserve examiners' ability to evaluate banks' BSA/AML controls for money transmitters accounts and help ensure that these evaluations are completed in accordance with BSA/AML examination objectives.
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| Office of the Comptroller of the Currency | The Comptroller of the Currency should, in coordination with the other federal banking regulators, and with input from BSA/AML examiners and other relevant stakeholders, take steps to improve examiners' ability to evaluate the effectiveness of banks' BSA/AML compliance controls with respect to money transmitter accounts. Steps may include providing updates to examination procedures, examiner training, or a combination of methods. (Recommendation 2) |
In June and July 2020, the Federal Financial Institutions Examination Council, of which OCC is a member, provided training to BSA/AML examiners across the federal banking regulators on money services businesses, including money transmitters. This training is being made available on an ongoing basis to BSA/AML examiners. This training focused, among other things, on conducting appropriate transaction testing of money services businesses and identifying potentially suspicious transactions. More recently, in March 2022, OCC provided training to its BSA/AML examiners on money services businesses that included a focus on assessing banks' BSA/AML compliance controls for money transmitters using the risk-based supervisory approach. This training should help improve OCC examiners' ability to evaluate banks' BSA/AML controls for money transmitters' accounts and help ensure that these evaluations are completed in accordance with BSA/AML examination objectives.
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| Federal Deposit Insurance Corporation | The Chairman of the Federal Deposit Insurance Corporation should, in coordination with the other federal banking regulators, and with input from BSA/AML examiners and other relevant stakeholders, take steps to improve examiners' ability to evaluate the effectiveness of banks' BSA/AML compliance controls with respect to money transmitter accounts. Steps may include providing updates to examination procedures, examiner training, or a combination of methods. (Recommendation 3) |
In July 2021, the Federal Deposit Insurance Corporation provided training to its BSA/AML examiners on money services businesses that included a focus on assessing banks' BSA/AML compliance controls for money transmitters using the risk-based supervisory approach. This training should help improve Federal Deposit Insurance Corporation examiners' ability to evaluate banks' BSA/AML controls for money transmitters accounts and help ensure that these evaluations are completed in accordance with BSA/AML examination objectives.
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| National Credit Union Administration | The Chairman of the National Credit Union Administration should, in coordination with the other federal banking regulators, and with input from BSA/AML examiners and other relevant stakeholders, take steps to improve examiners' ability to evaluate the effectiveness of banks' BSA/AML compliance controls with respect to money transmitter accounts. Steps may include providing updates to examination procedures, examiner training, or a combination of methods. (Recommendation 4) |
In October through December 2022, the National Credit Union Administration provided training to its BSA examiners on money services businesses that included a focus on assessing credit unions' BSA/AML compliance controls for money transmitters using the risk-based supervisory approach. This training should help improve National Credit Union Administration examiners' ability to evaluate credit unions' BSA/AML controls for money transmitters accounts and help ensure that these evaluations are completed in accordance with BSA/AML examination objectives.
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