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1 Effectively Managing Your AML Quality Assurance Program
Effectively Managing Your AML Quality Assurance
ProgramAugust 10, 2011
Noon EDT – 2:00 PM EDTA sound check will be performed 5 minutes before the start time
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Moderator:
Alan AbelDirector and Global AML Practice Leader
Crowe Horwath LLP
Effectively Managing Your AML Quality Assurance Program
Speakers:Beverly JulesSupervising ExaminerFederal Reserve Bank of New York
Stacey ZaleskiExecutive Director, Corporate ComplianceJPMorgan Chase
Sagheer MuftiManaging Director and Global Head of AML OperationsCiti
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Discussion Agenda1)The Why of It
2)Linkage of Quality Assurance with the AML Compliance Process
3)Key elements to consider within your QA Program Strategy
4)Staying Ahead of the Regulatory Curve
5)Assessing Gaps
6)Organizational Partnership
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The Why Of It• A Supervision and Regulation (“SR”) letter on compliance risk management and
oversight at large, complex financial institutions• Addresses queries related to a Basel paper on banking supervision risk• Four key areas:I. Firm-wide approach to compliance risk management/oversightII. Independence of compliance staffIII. Sound practices for compliance monitoring and testingIV. Responsibility of Board and senior management for risk management and oversight
► Continued high profile breakdowns in AML-related controls within large organizations:► Challenges with the “basics”► Increased reliance on technology, but foundation of reporting relies on
individuals and judgment► Greater need for quality in existing processes given the changes in international
payments systems (e.g. prepaid products, mobile products, increasing global clearing)
Regulatory View:
Business View:
- FRB SR 08-8
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Linkage Of Quality Assurance With The AML Compliance Process
A. Integrated cycle of activities. Continuous assessment of inherent risks & mitigating controls and clear specification of roles and responsibilities.
B. Execution based on monitoring, testing and reporting activities.
C. Active, Board level oversight and senior management supervision are key elements of governance.
Assessing Risks/Regulations
Inventoryand
Compliance Priorities
Planning
Commitment schedule/work plan
Reporting(Board, Senior) Management)
Action plan,Escalations
Executing
Monitoring, Testing, Onsite Reviews,
Findings, Standing Report and Progress
Report
Governance – Oversight and Supervision
Organization, Stature and Objectivity
Business Lines, Operations, Technology
Regulators
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QA Program Primary Objectives1. Control
• A robust Quality Assurance (QA) process serves as a key control for Compliance and Operational Risk mitigation, and helps ensure regulatory compliance by verifying the quality of the alert decision process
2. Timely Feedback • A key component of a well defined QA process is that it provides a timely feedback
loop on the quality of alert decisions3. Program
• A QA program should review work products for quality of documentation, decision making, and review of management oversight
4. Process Improvement • Root cause analysis of errors and other process deficiencies are a key output from a
robust QA process. Ideally, it should provide analysts input for continuous process improvement
5. Evolution• Maintain a consistent program that evolves with changes within the business,
company, industry, and regulatory environment
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Why QA? - Key Benefits of a QA Program
• A QA team acts as an independent partner to its Customers, i.e. AML Investigators/Analysts, Training Department, and Compliance Departments
• The QA team consists of experienced Subject Matter Experts to provide effective and timely expert guidance to the analyst/investigators
• Enforcement of Regulatory expectations and internal Policies through an in-house program to control and address potential risks and challenges in effective analyst performance
• Drive performance improvement thru detailed reviews necessary for structured feedback and mentoring
• Provide a quantitative result of areas of strengths and opportunities to Management that will promote continuous learning initiatives and development
• A properly executed QA program identifies, escalates, tracks, and facilitates the resolution of key issues
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Key Considerations in Developing a QA ProgramBuilding a team
• The Quality Assurance team should consist of experienced SMEs (Subject Matter Experts) in Anti Money Laundering and Quality Assurance processes
• Ideally can be a mix of experienced personnel sourced both internally and externally
• Internally sourced talents possess AML expertise as an AML investigator/analyst with an above average QA performance
• Externally sourced talents should possess AML background or considerable tenure in financial investigative functions concentrated in an analytical role with strong background in Quality
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Key Considerations in Developing a QA Program
• A peer review program leverages SME peer reviewers from the group being reviewed
• Selected reviewers are discussed with the group management
• Reviewers get the opportunity to see colleagues work -which helps them to understand the “big picture”
• This approach still requires management oversight of QA reviewer work to ensure accuracy and consistency
Peer Review Approach
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Key Considerations in Developing a QA ProgramProgram Considerations
• Scheduled and Ad Hoc Reviews - Reoccurring, scheduled reviews should provide review coverage on core functions. Ad hoc targeted reviews provide the flexibility to perform reviews in areas experiencing change.
• Review Timing - There are many options – monthly, quarterly, twice a year, as needed. Explore the different options to perform reviews more/less frequently to achieve different goals.
• Review Scope - Determine what core functions will be included in the review scope. Include areas where decisions were made to ensure made correctly.
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Key Considerations in Developing a QA Program
• A Sampling Methodology has to be identified to drive a risk-based approach for the selection of cases for QA review. This is managed thru an automated method that considers the historical quality performance of an investigator/analyst and volumes
• Targeted Reviews - More reviews are performed on investigators/analysts who have historical challenges in their performance and exhibit lower quality - Reduces risk by ensuring that focus is given to an investigator/analyst who has more historical discrepancies
• Training & Mentoring - Provide an opportunity to identify training needs and mentor effectively
• Sample Enhancement - Program should include opportunities to increase sampling during current review for high risk performers(secondary pulls of additional cases for reviews)
Review Methodology
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Key Considerations in Developing a QA Program
• The Quality Assurance framework is built on a set of core competencies against which the analyst is measured.
• Core competencies are established as Key Performance Indicators (KPI) to identify proficiency and skill set necessary to conduct AML Investigations – high level competencies include:
• Case disposition• Procedural Adherence• Analysis• Research • Writing
• Core competencies are instituted to drive uniformity and standardization across regional centers.
Standardization, Core Competencies and KPI’s
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Key Considerations in Developing a QA Program
1) Key QA Metrics • Incorrect Dispositions / reopens
- Ensure that analysts make the right decision when choosing the appropriate closing action of the case.
• Quality Trends- Competencies are also tracked to measure error rate and areas of deficiencies
2) Tracking & Reporting• Data are maintained in the QA platform where reports
are extracted as appropriate for reporting requirements.• Reports such as analyst feedback, aging reports, QA
Team’s workload and productivity reports are periodically published.
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Key Considerations in Developing a QA Program
• Escalation - Timely report QA results to team leads, group management, and executive management. Report QA results and trends – such as results by employee, by team lead, by question, and month-to-month trends
• Tracking & Resolution – Develop action plans to address significant issues and track action plans to resolution. Include target date for resolution and action plan owner
Issue Escalation, Tracking, and Resolution
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How to Best Stay Ahead of the Regulatory Curve
• Internal auditors or regulators may provide feedback thru examinations of the process QA process. Be sure to address any findings thru process improvement initiatives and corrective actions.
• Ensure strong ties with Internal audit and regulators to ensure alignment in direction and viewpoint
• Defining a Regulatory interaction model with frequent touch points on regulatory direction and input
• Though this interaction focus on best anticipating regulatory direction
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Assessing Gaps Thru Quality Reviews
• A Quality Assurance platform should be designed to store all QA reviews and related data. All quality reviews need to be quantifiable as well as qualitative with the information available to report trends and observations.
• The tool should be able to efficiently serve as a warehouse of all evaluations completed.
• It should have the capability to extract and run reports to show trends such as areas of strengths and opportunities.
• Provide capability to extract trends of data on diverse levels to show effects of specific competency from regional, business specific, to team and individual levels.
• Serve as a record keeping tool to demonstrate a complete audit trail of the case i.e. all corrections done in lieu of a QA review with confirmation from Management that case has been worked correctly.
• Provide simultaneous information access to teams where analysts and their managers may see all QA related reviews for timely feedback.
Tools and Systems
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Assessing Gaps Thru Quality ReviewsInterpretation of QA Results
• The Quality team and its Management will interpret QA results thru reports by applying root cause analysis and Total Quality Management (TQM) principles
• This analysis is a key communication vehicle for AML Management to provide detailed and data driven performance interpretation.
• This analysis is provided to internal Customers to evidence Performance of the AML monitoring /investigation services
• This analysis is also shared with Trainers to evidence results and effectiveness of monitoring /investigation training program.
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Assessing Gaps Thru Quality Reviews
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• Quality Assurance reviews are essential in creating an environment that thrives to promote continuous learning and development of its talents and resources
• AML Management uses all QA reviews to understand individual analyst’s opportunities or challenges
• QA results are used to design specific Performance Improvement Plans (PIP) to support continuous growth and learning.
• QA results are used to assist the Training Department in the improvement and development of rigorous training techniques, improve its modules and all related learning resources to drive speed to competency.
Feedback Delivery
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Assessing Gaps Thru Quality Feedback
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Continuous Improvement• The Quality team along with the Training team and the
AML Management team continue to collaborate to support the business and the organization as a whole
• Periodic synergy meeting is held to ensure gaps are closed and keep all departments educated of the current focus of each unit
• Calibration sessions are held to ensure that all departments supporting the business and the QA team internally have the same understanding of Policies & Procedures and the Quality guidelines
• Continuous feedback is provided to customers on concerns regarding the interpretation of procedures and guidelines
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Assessing Gaps Thru Quality FeedbackTraining Assessment and Feedback
• The Quality team involvement with the New Hire Training program is a key component of the success of the training
• Targeted quality reviews for new hire AML investigator/analyst
• Daily feedback to analysts to ensure continuous improvement in performance
• Quality Assurance linking with Training to provide needed mentoring.
• Quality Assurance integral part of the training program by introduction of the QA process and the partnership with the analyst to succeed.
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Essential Partnership
Follows through in a constant manner to ensure consistency in the measurement of:
• Effective Decision Making
• Quality Product
• Performance Excellence
Alert ReviewManagement
Analyst
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Managing Your AML Quality Assurance Program
A Regulator’s PerspectiveAugust 10, 2011
Beverly Jules"The views that I express are my own and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.”
Agenda1. Overview of BSA/AML Examination
Approach2. Key Considerations in Examining the QA
Program3. Expectations 4. Common Pitfalls
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BSA/AML Examination Approach Scope Setting
– Identified Risks• Bank’s risk assessment process• Location, size, services, activities, market, high-risk
– Prior Examination Findings/Management’s Responses– Leverage of Internal Audit Function
• Scope of review• Quality of review/reviewers• Findings• Response/Corrective Action
– Leverage of Compliance Reviews
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BSA/AML Examination Approach Scope Setting
– Suspicious Activity Reports• Government Database• Volume, content, patterns
– Currency Transaction Reports• Volume• Government Database
– Bank’s Policies• AML • Due Diligence and Know Your Customer• Suspicious Activity Reports• OFAC
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Key Considerationsin Examining the QA Program
– Methods to Identify Suspicious Activity– Policies and Procedures for Referring
Unusual Activity– Adequacy of Staffing
• Expertise• Specialized Training
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Key Considerations in Examining the QA Program
– Internal Research Tools• Access to Account Systems• Customer Due Diligence/Enhanced Due Diligence
Information– External Research Tools– Documentation of Conclusions– Multiple Departments Responsible for
Researching Unusual Activities• Communication and Coordination
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Expectations
• Proactive/Corporate Culture
• Risk Based QA Program
• Sound Methodology for Testing Alert Management Process
• Better MIS Reports
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Expectations• Clear Audit Trail of QA Program
• Experienced, Well Trained QA Staff
• Escalation Process
• Independent testing of QA Program
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Common Pitfalls• Inexperienced QA staff and QA management• Insufficient Oversight• No Escalation of QA Findings • Poorly Selected QA Samples • QA Procedures Tests Against Ineffective
Policies and Procedures• QA Findings not Tied to Training/Staff
Development
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Conclusion
Compliance must remain a high priority amid the credit crisis and global recession.
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Conducting Effective AML Investigations: Law Enforcement Methodologies and Private Sector Techniques
July 14 | Miami, FLOctober 19 | San Francisco, CAOctober 21 | Chicago, IL
Join veteran law enforcement speakers, Dennis Lormel and Edward Rodriguez, CAMS, as they present a full review of the investigative process from start to finish. Attendees will receive invaluable insight on:
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