Transaction Trending: Quick Take on BSA, AML & KYC

In a recent episode of Transaction Trending, the Electronic Transactions Association’s podcast, host John Losh, Director of Membership and Education, sat down with Chris Boone, counsel at Venable, to discuss the intricate landscape of financial regulation and compliance. The conversation shed light on the crucial areas of Bank Secrecy Act (BSA), Anti-Money Laundering (AML), and Know Your Customer (KYC) requirements. You can hear the complete interview here [link]. Please note nothing said or written construes legal advice.

Understanding the Basics: BSA, AML, and KYC

Chris kicked off the discussion by clarifying these often-conflated terms:

• The Bank Secrecy Act (BSA), passed in 1970, requires financial institutions to implement anti-money laundering controls and assist law enforcement in preventing illegal financial activities.
• Anti-Money Laundering (AML) encompasses all procedures, processes, laws, and regulations aimed at preventing, detecting, and reporting financial crimes.
• Know Your Customer (KYC) forms the backbone of an AML compliance program, involving identity verification and risk assessment of customers.

Regulatory Landscape: Banks vs. Fintechs

The conversation then delved into how these regulations apply differently to banks and fintech companies. While all banks are subject to the BSA, the situation for fintechs is more nuanced. Depending on their activities and partnerships, fintechs may be directly regulated as money transmitters or indirectly regulated through bank partnerships.

Recent Developments: OCC’s Third-Party Guidance

Chris highlighted the importance of the interagency guidance on third-party risk management released by the OCC, Federal Reserve, and FDIC in June 2023. This guidance reflects growing regulatory focus on bank-fintech partnerships and the associated risks. As a result, fintechs can expect more rigorous onboarding processes, and banks will likely become more selective in their partnerships.

Technology’s Impact: Blockchain and AI

The discussion then shifted to how emerging technologies are shaping the financial crime landscape:

• Blockchain and cryptocurrencies present both challenges and opportunities for AML compliance. While they offer some level of anonymity, they also provide transparent, immutable transaction records that can be analyzed for suspicious activities.
• AI and machine learning are increasingly being used to detect patterns of suspicious activity that human analysts might miss, analyzing vast amounts of data quickly and efficiently.

Looking Ahead: Challenges and Opportunities

As the financial industry continues to evolve, staying compliant with BSA, AML, and KYC requirements will require ongoing adaptation. Financial institutions and fintechs alike must remain vigilant, leveraging new technologies while also navigating the complex regulatory landscape.

For those looking to deepen their understanding of these critical issues, the ETA offers resources such as the Payments Compliance 101 and 201 courses, as well as the upcoming Payments Compliance Conference in October.

To hear the complete in-depth interview please click here.

Chris Boone will be on the panel on BSA/AML/KYC at ETA’s Payments Compliance Conference, Oct 29-30th, at The Ritz-Carlton, Pentagon City, VA. To learn the fundamentals of payments compliance we invite you to take our Payments Compliance 101 and Payments Compliance 201 courses [coming soon]. You can meet the experts and regulators at our annual Payments Compliance Conference.

Legal Disclaimer

The information provided in this blog post is for general informational purposes only and does not constitute legal advice. This content is based on a conversation with Chris Boone and reflects his professional opinions and interpretations as of the date of the interview. Bank Secrecy Act (BSA), Anti-Money Laundering (AML), and Know Your Customer (KYC) requirements are subject to change. Readers should not act or refrain from acting based on this information without seeking professional legal counsel. Neither the author, Chris Boone, Venable, nor any affiliated entities assume any liability for actions taken or not taken based on the contents of this blog post.