Independent Review Guidance for a Money Services Business (MSB)

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As the owner or operator of a money services business (MSB), you may be required to undergo an independent review periodically. While this can be a daunting process, there are steps you can take to help ensure a successful outcome. In this blog post, we’ll outline some tips on how to prepare for an independent review of your MSB. By following these suggestions, you can help ensure a smooth and efficient review process.

Purpose of the independent review

The independent review’s main objective is to assess how effective the money services business’s anti-money laundering program is. The examination should ascertain if the company is operating in accordance with both its own policies and processes and the Bank Secrecy Act’s requirements. Each money services company should identify and evaluate the potential money laundering risks connected with its particular goods, services, clients, and geographical areas. Money service organizations must take appropriate measures to control risks no matter where they occur. Each money services company should concentrate resources on the areas of its business where management believes there are the highest risks, and the level of sophistication of the internal controls connected with those areas should be adequate for their size, structure, risks, and complexity.

Why do you need to conduct an independent review ?

The USA PATRIOT ACT’s Section 352 amended the Bank Secrecy Act (BSA) to require financial institutions, including broker-dealers, to implement AML programs.

A risk assessment serves as the cornerstone of AML programs, which must contain the following but are not limited to:

  • A compliance officer, who is responsible for making sure the business complies with AML regulations,
  • To detect, prevent, limit, and control money laundering and financial risk, written rules, procedures, and controls must be in place.
  • independent reviews – to assess the program’s effectiveness and address any issues
  • continuing training :To ensure compliance with regulations

These requirements, which cover all measures used to combat money laundering and financial crimes, are often known as the four pillars of BSA/AML programs.under that the requirement for the independent review is emphasized.

An independent review of your money services business is important for a number of reasons. It helps ensure that you are in compliance with anti-money laundering regulations, protecting both your company and customers from the potential risks associated with money laundering activities. An independent review can also help identify any areas where additional controls or processes may be necessary to better protect against money laundering. Finally, an independent review can help you demonstrate to regulators that your organization is taking the necessary steps to ensure compliance.

How should the review be conducted?

Each necessary component of the company’s anti-money laundering program, such as its Bank Secrecy Act-related policies, procedures, internal controls, recordkeeping and reporting duties, and training, should be objectively and fairly evaluated. Internal controls, transactional systems, and processes should all be put to the test as part of the evaluation in order to find any issues or flaws and, if necessary, suggest to management the necessary remedial steps. For instance, if a program mandates that a certain employee or group of employees receive training once every six months, independent assessment should ascertain whether the training was provided and whether it was sufficient.

The evaluation needs to include all of the anti-money laundering program actions carried out by the designated compliance officer. Examples of these actions include figuring out the business’s exposure to money laundering risks, how frequently employees receive anti-money laundering training under the Bank Secrecy Act, and adopting protocols for the implementation and supervision of transactional systems and program-related controls.

An independent AML audit generally includes the following:

  • A thorough examination of the manual for the company’s AML compliance program
  • testing the organization’s AML policies and practices
  • Customer Identification Procedure (CIP) review
  • Testing and evaluation of transactions
  • OFAC audits
  • Review of filings relating to FinCEN (CTRs and SARs)
  • Evaluation of management information systems and automated monitoring systems Review of AML training
  • Review of prior audit reports to determine the effectiveness of adjustments that were suggested and implemented

How frequently should the review take place?

Periodically conducting the review is recommended. The risk assessment of the money services firm, which should take into account the products, services, clients, and geographical locations of the business, will determine the size and frequency of the review. Based on their risk assessments, certain money services companies might not require an annual review, while others might benefit from more frequent reviews. A more frequent review may be beneficial, for instance, if the risk estimate for the money services firm changes. Similar to the previous example, it may be wise to move up the date of the subsequent review if compliance issues are found in order to ensure that corrective measures have been performed.

Should the review be documented and reported to management?

as per the Fincen Guidance on MSB independent review, Yes. The individual or individuals in charge of carrying out the review should record the review’s scope, processes carried out, transaction testing completed, if applicable, conclusions of the review, and suggestions to management for corrective actions, if applicable. Following the evaluation, the reviewer or designated compliance officer should keep a record of the flaws and weaknesses found during the review and the corrective steps the money services organization took to address them. The complete paperwork should be made available to government examiners and law enforcement officials who are authorized to review such documents, if necessary.

Who is recommended to perform the independent audit? 

  • License auditors  
  • A certified public accountant 
  • Third-party consultants/businesses 
  • An attorney 
  • Any officer or employee (or group thereof) can do it, except the compliance officer appointed in the companies’ AML program or the compliance officer’s direct reports.

Quality of the independent review

The quality and quantity of resources are a key element of successful independent AML audits. This covers logistical, technological, and human resources. An important component of a successful independent AML audit is the level of AML/CTF knowledge of the independent AML auditors. Proficiency with the particular legal and regulatory framework is important; nevertheless,An effective auditor will also have experience in their particular field and be very committed to the procedure. Technology-based tools and systems can help the independent AML audit function classify, organize, record, access, and transmit information and data to the necessary stakeholders.

Communication is another important element of a successful independent AML audit. The independent AML audit is a methodical and collaborative exercise focused on the AML/CTF strategy of the obliged entities in order to identify the key areas for improvement and recommend practical solutions to move forward. Obliged entities and auditors should understand that this is not a regulatory examination.

Conclusion

By giving an objective, unbiased perspective and unbiased understanding of the required entities AML strategy, external independent AML audits are essential for identifying the key problem areas surrounding the AML procedures and controls of the obliged entities. External independent AML audits can assist needed entities in ensuring the timely identification and effective mitigation of risk, as well as eliciting a true understanding of their position with regard to AML compliance, help required entities to keep up with the pace of regulatory and legislative change, and develop corrective action-plans to implement and maintain the evolving requirements in practice.

With the help of external independent AML audits, required entities can ensure that their AML compliance program is in line with current laws and regulations and work to mitigate risks associated with money laundering. The regular practice of external independent AML audits can help the required entities to effectively manage money laundering risks. The best way to safeguard the integrity of the financial sector and protect customers from fraud is through a robust, well-coordinated, and efficient AML compliance program. External independent AML audits provide an invaluable service in this regard. They provide an objective assessment and help required entities to identify deficiencies and develop corrective measures that can be implemented, so they can address all the risks associated with money laundering. By doing this, required entities can ensure that their AML compliance program is up-to-date and fit for purpose.

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