BSA/AML Update

1. BSA/AML Update Peter Fitzgerald Principal Deloitte & Touche LLP

2. Evolving Regulatory Approach • Risk-based supervisory approach • Establish a “culture of compliance” • Set tone at the top • Top management is ultimately responsible for compliance • Business is responsible for day-to-day compliance • Compliance management plays a key role in corporate governance, monitoring and advisory functions

3. Evolving Regulatory Approach (cont.) • Greater reliance on institution’s own monitoring • Focus on systems, procedures and controls • Compliance with “letter and spirit” of the law • Enforcement actions are mainly being driven by failure of institutions to adequately design and/or implement their BSA/AML programs, e.g., • Failure to effectively file SARs • Insufficient resources/oversight • Inadequate testing • Missing the risks

4. Evolving Regulatory Approach (cont.) “Examiners expect to find certain core principles of risk management including, top level involvement, clear responsibilities at each level of management, independence of risk controls, strong well-developed systems and effective monitoring and reporting.” Mary Ann Gadziala, Associate Director, OCIE, Securities and Exchange Commission “A culture of compliance should establish – from the top of the organization – the proper ethical tone that will govern the conduct of business. In many instances, senior management must move from thinking about compliance as a cost center to considering the benefits of compliance in protecting against legal and reputational risks that can have an impact on the bottom line.” Former Governor Susan Schmidt Bies, Board of Governors of the Federal Reserve System

5. BSA/AML Program Should Be Based A Risk-Based One Maintenance Governance Account / Transaction Monitoring Policy & Procedures Risk Assessment Organization & Controls Threads RiskProfile People Process Record Keeping / Retention AML Regulatory Requirements Technology Reporting P&P / Structure Testing CIP/CDD/EDD Training / Testing

6. Characteristics of a BSA/AML Program • Provide adequate human and financial resources • Provide compliance staff with appropriate authority and independence • Link compliance objectives to Senior Management’s goals (and compensation) • Identify and assess compliance risk across the entire organization • Maintain understanding of applicable laws and regulations • Establish policies, procedures and internal controls

7. Characteristics of a BSA/AML Program (cont.) • Develop risk measurement, monitoring and MIS to provide timely reports • Establish internal controls for analyzing new business activities and products • Establish an escalation process for reporting identified risks or breaches • Take corrective actions/interim controls to address breaches and track exceptions until resolved • Ensure compliance staff objectivity and independence from business lines

8. Where is Your Organization? A method to project, manage and monitor progress

9. Motivation for Compliance • Fulfilling a social responsibility for the companies and a moral imperative for the individuals. • Guarding your employment, good name, professional integrity, and the good name of your company. • Avoiding criminal and civil liability under the BSA as well as money laundering laws, regulatory enforcement actions, and related shareholder suits. • Avoiding aggressive scrutiny by regulators and a loss of confidence in your company by the regulators. Trust and good will lost are hard to regain. Privileged and Confidential 9

10. Contact Information Peter Fitzgerald Principal Deloitte & Touche LLP pefitzgerald@deloitte.com 212-436-5221 www.deloitte.com/aml

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