On October 3, 2018, the federal bank regulatory agencies, the National Credit Union Administration and the Financial Crimes Enforcement Network (collectively, the Agencies) published a joint statement addressing instances in which financial institutions may enter into collaborative arrangements to share resources to manage their Bank Secrecy Act and anti-money laundering (BSA/AML) compliance obligations more efficiently and effectively.1 For affiliated banks and certain smaller financial institutions with similar risk profiles, collaboration toward meeting BSA/AML expectations may be a worthwhile endeavor.
Collaborative arrangements involve two or more banks participating in a common activity or pooling resources to achieve a common goal. As stated by the Office of the Comptroller of the Currency, collaborative arrangements may improve quality, reduce costs, strengthen controls, and achieve many of the following objectives:
- gain operational or financial efficiencies;
- pool resources and spread costs for capital-intensive products and services;
- increase ability to acquire and support current technology and avoid obsolescence;
- conserve capital for other strategic business opportunities;
- increase management focus on core business functions;
- refocus limited internal resources on core functions;
- obtain or share specialized expertise;
- increase reach and availability of services;
- accelerate delivery of products or services through new channels; and
- earn greater credibility.2
To this end, the interagency statement provides a number of examples specific to BSA/AML compliance that may be suitable for collaborative arrangements, including: drafting, reviewing and updating internal control policies; utilizing another financial institution's employees to conduct independent testing; and sharing costs of hiring outside compliance training.
Sharing resources relating to BSA/AML compliance can be useful to the right size and type of financial institution, but care should be taken to assure any arrangement is in compliance with applicable legal restrictions. The contract governing the collaborative arrangement should address a number of key risk areas, including privacy and protection of customer data, limitations on the disclosure of confidential supervisory information and suspicious activity reports, protection of proprietary business information, and, for collaboration between affiliated banks, the affiliate transaction restrictions under Sections 23A and 23B of the Federal Reserve Act and Regulation W. The contract should also contain representations and warranties and indemnification provisions appropriate to the activities being governed and consistent regulatory guidance on third-party vendor management.
Institutions interested in assistance with drafting contracts governing collaborative arrangements are encouraged to contact any of this Advisory's authors or their usual Arnold & Porter contact. The firm's Financial Services team would be pleased to assist with any questions about collaborative arrangements or BSA/AML compliance more broadly.
1 Interagency Statement on Sharing Bank Secrecy Act Resources (Oct. 3, 2018).
2 An Opportunity for Community Banks: Working Together Collaboratively, Office of the Comptroller of the Currency (Jan. 13, 2015).
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