80s Nostalgia and BSA/AML
Watching Stranger Things (Netflix series in its 4th season) has added enjoyment for those of us who grew up during the time frame presented in the series. I’m especially fascinated by the references to D&D. For those who weren’t teenagers in the 80s, we’re talking about Dungeons and Dragons, a tabletop role playing game in which players take on roles and form a group, or “party,” to go on a pre-planned adventure. When I was a teenager, we played a lot of D&D and enjoyed much of our summer evenings role playing through challenges created by our “Dungeon Master” or DM. I personally wasn’t nerd enough to be a good DM, who had to be extremely dedicated to their craft to make it fun for those of us that just wanted to play. A good campaign, especially one that provided intrigue and a balanced adventure that was both challenging and winnable, would often take the DM weeks to create. Make it too hard, and the party will likely fail. You can’t expect to beat the now-famed Demogorgon with a bunch of “newbies.” On the other hand, make it too easy and the players wouldn’t “level up,” a primary goal of all D&D players. Striking that balance is what makes a great D&D game great – and it is the same principle that makes BSA/AML departments function optimally.
The DM of a BSA/AML department is typically the BSA Officer. This individual has the task of designing their “campaign” to best utilize the skills of their team against the risk profile of the organization. The balance is tricky and always dynamic. Make the effort too complicated or rigid and you’re likely to overwhelm and lose valuable team members. Make it too easy or light relative to the risk of the organization and you’ll likely miss regulatory expectations. Even the Crypto Currency world is learning that excessively light programs result in heavy fines. Invariably, most insured financial institutions over the past twenty years have leaned toward excess. But that excess is coming at a hefty price: globally, financial institutions reportedly spent an estimated $26.4 billion on AML operations in 2021.
After 20 years of BSA/AML program build-up following 9/11 and laws and regulations stemming from the USA Patriot Act, many insured financial institutions are starting to look at their BSA/AML programs and wonder if the rising cost is sustainable. Moreover, when organizations find they’ve built a “monster” program, they wonder if the beast can be dismantled. In our experience? The answer is yes. Overly bulky and complicated BSA/AML operations can be both streamlined and maintained. Financial organizations struggling to manage BSA/AML processes can learn four powerful lessons from the D&D world.
Lesson One – Know Your Dungeon
Embarking on any D&D campaign requires a strong sense of (1) what will be faced in the dungeon and (2) what is available in your party’s arsenal. Organizations must be constantly assessing both their risk and the program, and ensuring they measure up. For BSA/AML and Sanctions, this requires strong risk assessments including key aspects:
These assessments should also include program elements such as strengths and weaknesses in meeting requirements. Presenting the overall position of the organization is a critical step.
Lesson Two – Eliminate Excess
D&D players “gear up” to begin a campaign. They purchase items that range from potions to weapons. But there is only so much each player can carry. Making the right choice of how to properly equip oneself is critical. So often in our efforts to validate financial institutions’ BSA/AML surveillance monitoring systems we find an overwhelming amount of excess. This stems from weak customer/member risk profile systems that do not properly align to risk and are often outdated or incomplete, resulting in an excessive KYC/KYM monitoring. Weak AML system rule configurations often mean that resources are improperly utilized. These and other areas of an organization are prime opportunities for reduction. A successful effort to eliminate excess can have a dramatic impact across the organization.
Lesson Three – Apply the Spectrum of Risk
A D&D party faces challenges throughout a campaign. However, all challenges are not the same. Some are minor skirmishes designed primarily to prepare you for the major battles. The same is true in the BSA/AML world. Understanding the level of risk from each activity is important. Using the concept of Spectrum of Risk, organizations can adjust their response to presented risk based on the level of impact. Applying the spectrum of risk in every key phase of BSA/AML will promote needed efficiency and merits strong consideration.
Lesson Four – Never Underestimate the Value of Communication
When building a dungeon, the DM must think through the possibilities of action. For players, the key is to be capable of gathering information, processing that information, and making sound decisions based on the strengths and weaknesses of the party. This is why D&D is so fun! A strong party has a variety from healers to fighters to spellcasters and so on. The combination of types allows the party to face all kinds of scenarios. But what happens if the players can’t communicate with each other? The lack of communication frequently causes massive issues. In a challenging dungeon, the loss of communication may lead to the dreaded TPK, or Total Party Kill. Not one player survives.
Communication within a BSA/AML department – and throughout the organization – is essential. It is more than having the ability to talk to one another. Communication is about having systems in place to allow each player to operate to their maximum capacity. Strong AML systems have sound databases that promote the gathering and interfacing of information to benefit the organization. When communication systems in AML are not leveraged, heavy inefficiency results. Given enough time, the organization will falter. A TPK.
D&D adventures have an optimum number of players. Too many and there is little time for those playing to engage and enjoy themselves. Too few and the burdens of the campaign are overwhelming.
As insured financial institutions review their BSA/AML departments for optimal levels, there are many possible approaches. Sometimes, however, the close proximity of those within the department impacts their capacity for objectivity in evaluating those opportunities for efficiency. It may take an experienced, objective outsider to review where those efficiencies can and should be pursued. The AdvisX team has decades of experience working with hundreds of financial institutions of every size and shape. We’ve faced the relatively benign Goblins as well as a few Demogorgon in our time. If your organization is looking to find the right fit, seeking efficiency without sacrificing coverage, perhaps contacting us would be a good decision. Stranger things have happened.