OCC Issues Guidance on AML/BSA Risk Management

As promised by Comptroller of the Currency Thomas Curry last week, the OCC today released guidance articulating its expectations for banks with respect to terminating foreign correspondent relationships. The guidance addresses the recent “derisking” trend in anti-money laundering and Bank Secrecy Act compliance.

The guidance directs banks to establish and implement procedures for periodically reevaluating the risk posed by foreign correspondent relationships, taking into account the risks present in foreign institutions’ business and markets, the anticipated account activity and the supervisory regime of the geographic location in which the foreign financial institution is licensed. Reevaluations should be performed periodically for all foreign correspondent accounts, and banks making decisions to terminate foreign correspondent relationships should base their determinations on these reevaluations.

Along with the guidance, the OCC included “best practices” for banks when conducting risk reevaluations, which include establishing a governance function to review and monitor recommendations regarding foreign account termination; ensuring that decisions are properly communicated to both senior management and the foreign financial institution in question (if permitted by law); and ensuring proper documentation of the decision-making process before taking any steps to terminate a foreign correspondent accounts. As part of that process, the agency expects banks to consider the effects account closure might have on the foreign correspondent, particularly with respect to accessing banking services.

Unlike most BSA/AML guidance typically released under a joint-agency approach, the guidance was issued independently by the OCC and without industry input. ABA is currently in the process of analyzing the guidance, but fears that the expectations outlined by the agency (which are often interpreted as mandates by examiners) could ultimately serve to perpetuate the derisking trend rather than curb it. Additionally, ABA noted that establishing a set of requirements that must be met before a bank can terminate a foreign correspondent relationship may run contradictory to the agency’s claim that it “does not direct banks to open, close or maintain individual accounts.” For more information, contact ABA’s Rob Rowe.