3 minutes
Regulatory tasks can be made less arduous by remembering the good reasons we do them.
Ask anyone around you what they think about credit union compliance, and chances are, all you’ll get is a frustrated sigh and a fed-up eye roll. If you’re lucky, maybe the response will even come with an exasperated, “What now?”
That’s because compliance has a bad rap of being burdensome, mercurial and labor-intensive. And while those things may ring true, it’s important to remember the why—why compliance is necessary and why it is such a critical part of the credit union and overall financial industry. After all, credit unions witness and monitor the entry and movement of capital around the world, a responsibility that can’t be taken lightly.
When you wipe away all the superfluous processes and concentrate on the actual purpose of the many rules and regulations we abide by, you might find that compliance really isn’t the great evil it’s often made out to be. Let’s take a look at member due diligence and suspicious activity reporting to differentiate between the process and the purpose.
The Process
When a member opens an account, we must conduct member due diligence. This means there are lots of questions to be asked and documentation to be done. There’s identification to be collected and confirmations to be completed. It’s time-consuming, and sometimes members are annoyed by it just as much as credit union staff. That’s the process.
But, confirming your member’s identity and establishing reasonable expectations of their “normal” behaviors—i.e., deposits, withdrawals, etc.—means you can better determine when account activity looks suspicious. Without member due diligence at account opening to tell you that your member receives direct deposit from their employer in the amount of $1,500 every other week, you might not recognize that a $6,000 check from an unknown entity might be an indication of suspicious activity. This is the purpose.
For a suspicious activity report, there is lots of data to be collected and paperwork to be filled out. Record-keeping and review of all transactions are necessary to do on a daily basis, as well as looking at activity over time. Referencing the Office of Foreign Asset Control and other databases is an integral part of this process. Attention to deadlines and filing instructions must be followed. All of these steps must be done for every transaction that falls within requirements of the Bank Secrecy Act and Anti-Money Laundering regulations. That’s the process.
The Purpose
But all the collective time and effort that goes into a SAR is a preventative measure to stop fraud, criminal and terroristic activity from being successful. Information-sharing allows financial institutions of all types and sizes to provide information that is helpful to one another, as well as law enforcement. You can find many cases on FinCEN’s website in which SARs and BSA reporting documents helped solve money-driven crimes. For example, a bank in Tennessee filed a SAR that led to the arrests and indictments of seven individuals who were participating in illicit money laundering and drug trafficking activities. This is the purpose.
Whatever the compliance process looks like, it’s a means to protect the information and funds your members entrust you with. Its purpose is to provide all parties with some security. Without these requirements in place, everyone is at risk. And the risks aren’t just limited to fraud or criminal activity. If not done properly, your credit union could face charter revocation, prosecution, reputational damage and hefty fines (which are only set to grow to match inflation, as recently shared by FinCEN).
It might be hard to completely erase the eye rolls and weariness that compliance tasks bring to credit union employees. In the grand scheme of things, though, their true purpose serves a greater good. If we can reframe our thinking to understand that these tasks aren’t just time-consuming requirements, but ones that will keep our members and our institutions protected from fraud, crime, etc., we can appreciate their usefulness that much more. And that’s a compliance viewpoint worth perpetuating!
Cindy Hagan is compliance and fraud risk director at Vizo Financial.
