By: Dan Frechtling, SVP of Marketing and Chief Product Officer
Carey Rome of Cypress Resources authors a useful piece in ABA Banking Journal that illustrates how business customer intelligence is one of the best practices for BSA/AML. From this article, we paraphrase four principles about managing risk by sticking to what banks know best:
1. Start with your core customer
2. Continually screen out businesses that slip into non-core
3. Stay true to your core to lower costs
4. Lead from the BSA/AML team
Here they are addressed in order, with commentary from Carey:
1. Start with your core customer. “Once you’ve zeroed in on ideal customers, you can then divest riskier, less profitable relationships. This compliance strategy requires fewer risk management personnel while improving oversight, reducing risk, and improving profitability…[For example], regional banks in the Southeast might designate automotive manufacturers as target customers. By focusing on a customer type (manufacturing, say), bankers can better understand the nuances of their businesses, such as transaction trends and import/export activity.
2. Continually screen out businesses that slip into non-core. “Divest risky lines of business that aren’t the bank’s forte. I suggest a 12-month rolling strategy with quarterly assessments to ensure you stay compliant. Don’t treat quarterly assessments as boxes to check. Instead, be diligent — shell corporations and pyramid schemes can look like real businesses and vice versa.”
3. Stay true to your core to lower costs. “After considering regulation compliance costs and weighing them against potential profits, JPMorgan decided instead to pursue high-value non-retail accounts. Is this passing up money? Not at all. Because the bank’s strategy is to deepen existing investments rather than diversify its customer portfolio, it won’t need as many compliance specialists to manage divergent lines of business. Decreasing expenses is just as important as raising revenues to growing profits.”
4. Lead from the BSA/AML team. “BSA officers must take the lead in developing and presenting a sound strategy. This plan should project risk and growth for the next three years, accompanied by a detailed 12-month strategy to decrease risk by homing in on target customers. Revising your BSA/AML strategy to align with target customers is an essential and responsible part of growing while staying compliant. Banks that don’t keep up might find themselves up next in the regulatory hot seat or on the front page for the worst reasons.”
This information is invaluable for your direct business customers, as well as those within your Third-Party Payment Processors (TPPPs) and Third-Party Senders (TPSs).
G2 KYC services help you follow the counsel above. You can categorize business clients in your portfolio, then find others like them that are not yet your clients. Identify businesses by NAICS or MCC industry classification, then weed out those with poor reputation, misconduct or other hazards at any point in the customer relationship. G2 also allows you to customize the frequency of your reviews. Choose annually, semi-annually, quarterly or monthly depending on risk level. Summarize risk in a KYC Compass Score for faster review and triaging.