ABA Urges Additional Clarity on Model Risk Management for BSA/AML Compliance

The American Bankers Association filed comments today urging the federal banking agencies and the Financial Crimes Enforcement Network to provide additional guidance on how the 2011 “Supervisory Guidance on Model Risk Management,” or MRMG, works in conjunction with Bank Secrecy Act/anti-money laundering and Office of Foreign Assets Control compliance. On April 9, the agencies issued a statement on how MRMG principles should be applied to BSA/AML and OFAC compliance.

ABA said that while the MRMG works well and should not be changed, the agencies should take steps to provide additional clarity, such as examples to distinguish between rules and models, when adjustments to models should be considered material, and when and how frequently model validation is necessary. ABA also recommended that the agencies make it clear that BSA/AML and OFAC systems should not be preemptively presumed to be models subject to MRMG risk management, “when a bank can demonstrate that this risk is managed effectively by BSA/AML and OFAC compliance,” adding that “requiring model validation where it is not necessary diverts resources from combating money laundering, terrorist financing and illicit finance.”