Featured Product

    US Agencies on Model Risk Management for BSA/AML Compliance by Banks

    FHFA issued Orders to Fannie Mae and Freddie Mac (the Enterprises), along with the summary instructions and guidance, with respect to the stress test reporting as of December 31, 2020. The Orders mention that each Enterprise shall report to FHFA and to FED the results of the stress testing as required by the FHFA rule on stress testing of regulated entities (12 CFR 1238), in the form and with the content described therein and in the summary instructions and guidance, accompanying the Orders. In addition, US Agencies (FDIC, FED, NCUA, and OCC), including the Financial Crimes Enforcement Network (FinCEN), are requesting information on the extent to which the principles discussed in the interagency supervisory guidance on model risk management support bank compliance with the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) and Office of Foreign Assets Control (OFAC) requirements.

    The agencies seek this information to enhance their understanding of bank practices in these areas and determine whether additional explanation or clarification may increase transparency, effectiveness, or efficiency. Comments will be accepted for 60 days following publication of the request for information in the Federal RegisterThe US Agencies concurrently issued a joint statement to clarify that the risk management principles discussed in the supervisory guidance are appropriate considerations in the context of the BSA/AML statutory and regulatory requirements. The statement clarified the following key points

    • The supervisory guidance on model risk management does not have the force and effect of law. Banks may use some or all of the principles in the supervisory guidance in their risk management processes to support meeting the regulatory requirements of an effective BSA/AML compliance program. Banks with limited model use may not have formal model risk management frameworks.
    • The supervisory guidance is not meant to serve as a set of testing procedures, including with regard to BSA/AML systems.
    • The supervisory guidance does not establish any requirements or supervisory expectations that banks have duplicative processes for complying with BSA/AML regulatory requirements.
    • Certain processes and systems used in BSA/AML compliance may not be models. The determination by a bank of whether a system used for BSA/AML compliance is considered a model is bank-specific. When making this determination, a bank may consider the supervisory guidance model definition and the three components that characterize models.
    • Banks assess different models in different ways. The nature of testing and analysis of models depends on the type of model and the context in which the models are used.
    • The principles in supervisory guidance provide flexibility for banks in developing, implementing, and updating models. Banks may benefit from employing this flexibility, including for validation activities, to update BSA/AML models quickly in response to the evolving threat environment and to implement innovative approaches. Banks may establish policies that govern when the bank may implement less material changes to models without revalidation, or may choose to revalidate certain model components without revalidating the entire model.
    • Banks may choose to use a third-party model. When doing so, banks may consider the principles discussed in the agencies’ third-party risk management issuances and the aspects of the supervisory guidance that address third-party models.
    • Regardless of how a BSA/AML system is characterized, sound risk management is important, and banks may use the principles discussed in the supervisory guidance to establish, implement, and maintain their risk management framework.

     

    Related Links

    Comment Due Date: FR+60 Days

    Keywords: Americas, US, Banking, Reporting, Stress Testing, Fannie Mae, Freddie Mac, Dodd-Frank Act, AML, EGRRCP Act, COVID-19, Regulatory Capital, BSA, Model Risk Management, FHFS, US Agencies

    Featured Experts
    Related Articles
    News

    EBA Guide to Monitor Threshold for Intermediate Parent Undertakings

    The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).

    July 28, 2021 WebPage Regulatory News
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    ESMA Group Issues Recommendations on RFR Switch in Interdealer Market

    The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.

    July 26, 2021 WebPage Regulatory News
    News

    EC to Defer Application of SFDR Standards Till July 2022

    The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.

    July 23, 2021 WebPage Regulatory News
    News

    EIOPA Consults on Reporting and Disclosures Under Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) proposed to amend the supervisory statement on supervision of run-off undertakings that are subject to Solvency II regulation.

    July 23, 2021 WebPage Regulatory News
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7295