Despite outward confidence, some CUs struggling with FinCEN rule changes

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A year after the Financial Crimes Enforcement Network updated its Customer Due Diligence requirements for financial institutions 91% of credit unions say they are pleased with their overall compliance, while 88% of CUs and banks say they feel “confident” in their compliance efforts for new beneficial ownership rules. But CUs also indicated some challenges remaining within those rules.

That’s according to a recent survey from RSM, a supplier of audit, tax and consulting services, conducted its second anti-money laundering survey. It queried AML departments at U.S.-based credit unions and banks that had $500 million in assets to $50 billion. Of the 236 participants, 87% were commercial banks and 13% were credit unions.

At the same time as FinCEN was updating due dilligence rules, regulations regarding beneficial ownership requirements became effective, which in turn made amendments to Bank Secrecy Act guidelines. In the wake of the release of these new rules, which RSM said sent numerous financial institutions to regulators seeking guidance.

According to RSM, fully 100% of credit unions reported they were either “very confident” or “mostly confident” in their internal controls for BSA, along with 99% of banks. However, when it came to the new CDD rule there was more doubt – 90% of banks and 74% of CUs said they were completely or mostly confident in their compliance.

One reason why FIs were less confident in their compliance with CDD and beneficial ownership was a delay in regulators issuing updated guidance, RSM reported. This delay led to “significant” confusion at banks and credit unions, as updated examination procedures pertaining to the CDD rule were not released until the effective date of the rule. Some 5% of survey respondents said FinCEN was “counterproductive” when designing processes.

Financial institutions reported their biggest challenge in CDD rule compliance was training staff, with 50% saying training was “very challenging” or “mostly challenging” when implementing the rule. The two next most frequently cited complaints were having to implement or modify systems for the beneficial owner data (37%) and the necessity to create a process to acquire information from new members/customers (36%).

Credit unions reported a greater pain point with beneficial ownership training than did their bank counterparts, as 48% of banks said training front line staff on this aspect was “very challenging,” compared to 62% of credit unions.

Not only were regulators tardy in issuing guidance for the new standards, so too were technology vendors serving the financial services space. Survey respondents said this led to small windows of time to test new systems meant to address CDD and beneficial ownership. Some 73% of banks and 80% of credit unions said they were “very confident” or “mostly confident” in the technology they used.

“Given these results, institutions likely have room for improvement with technology solutions and can likely benefit from regularly evaluating solutions and vendors,” the study’s authors wrote.

Survey respondents reported a “significant” increase in costs to comply with these new regulations, RSM said. Banks said their costs for developing responses to the beneficial ownership rule went up 15.7%. The leading cost category was training (an 8% increase in spending), followed by software and operating systems (5.6%), personnel (4.7%), and compliance consulting (3.5%).

At the time of the survey, only one-third of respondents had been examined under the new CDD rule, causing RSM to conclude FIs will need to “focus on the sustainability” of their compliance efforts. The company said concerns raised in the survey pointed to a need for continued training for front line staff – especially if there is turnover.

With new regulations constantly emerging, the study’s authors stress the importance of FIs gaining efficiencies through process automation. “Sustainability of these solutions depends on training, testing and validation of data quality and system performance,” the study said.

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Compliance Financial regulations AML Money laundering Training KYC FinCEN