Supervisory Guidance on Model Risk Management for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT)
Financial institutions that rely on systems or models to assist in complying with AML/CFT requirements are subject to supervisory guidance from financial regulatory agencies. This article provides an overview of key FAQs, joint statements, and other resources related to model risk management.
Model Risk Management: An Overview
Model risk management refers to the process of identifying, assessing, measuring, monitoring, and controlling risks associated with the use of models in financial institutions.
Identifying Potential Risks
When using a system or model for AML/CFT compliance, institutions should consider factors such as:
- Data quality
- Model complexity
- User understanding
These factors can help identify potential risks and inform mitigation strategies.
Joint Statements from Regulatory Bodies
The Basel Committee on Banking Supervision (BCBS) has issued guidance on the sound management of risks related to money laundering and financing of terrorism. Additionally, the BCBS has developed standards for correspondent banking activities, including due diligence requirements.
Resources for Model Risk Management
- FinCEN’s Financial Institutions Hotline: 1-866-556-3974 (24/7)
- Wolfsberg Correspondent Banking Due Diligence Questionnaire
- National Strategies and Risk Assessments:
- 2022 National Strategy for Combating Terrorist and Other Illicit Financing
- National Money Laundering Risk Assessment
- National Terrorist Financing Risk Assessment
- National Proliferation Financing Risk Assessment
Educational Resources
- Anti-Money Laundering/Countering the Financing of Terrorism technical assistance video
- FDIC’s Technical Assistance Video Program: Educational videos on areas of supervisory focus and regulatory changes.
By understanding these FAQs, joint statements, resources, and guidance, financial institutions can better manage model risks and ensure compliance with AML/CFT requirements.