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In February 2012 the U.S. Department of the Treasury, through the Financial Crimes Enforcement Network (FinCEN), issued a final rule requiring nonbank residential mortgage lenders and originators to establish anti-money laundering (AML) programs and to report suspicious activities under the Bank Secrecy Act (BSA).  State examiners have begun to drill down on the AML programs of lenders and brokers to ensure compliance.  Below are some of the AML program components regulators will likely be looking for and asking about as part of their examinations:

• Designation of a competent and qualified individual to serve as the company’s BSA/AML compliance officer;
• Conducting AML Risk Assessments;
• Maintaining written internal policies and procedures;
• Establishing an ongoing AML training program;
• Detecting and properly reporting suspicious activity;
• Conducting independent audits of the company’s AML program every 12 to 18 months; and
• Board of Directions (Board) and/or Executive Management oversight.

As we begin this series focused on annual audits lenders should perform, we want to highlight the importance of performing an independent review of your AML program.  The AML audit may be performed by a qualified independent third party or by an employee of the company, provided the employee has no role whatsoever in the AML functions being tested (including reporting to the BSA/AML officer), and possesses enough knowledge of BSA regulations to be qualified to perform the audit.  The specific nature of the testing required may be somewhat dependent on the company’s size and risk profile, but should be sufficient to assist the Board and/or Executive Management in identifying areas of weakness or areas where there is a need for enhancements or stronger controls.  Testing should cover all aspects of the AML program.