On December 1, 2021, the Federal Financial Institutions Examination Council (FFIEC) released updates to its Bank Secrecy Act / Anti-Money Laundering (BSA/AML) Examination Manual (the “FFIEC Manual”), which is relied on by banks to provide guidance on how examiners evaluate a financial institution’s BSA/AML compliance program and compliance with related regulatory requirements.

In 2021, the FFIEC released three updates to the Manual, the most recent of which affects the following sections:

• Introduction – Customers (new)
• Charities and Nonprofit Organizations
• Independent Automated Teller Machine (ATM) Owners or Operators
• Politically Exposed Persons

The FFIEC Manual’s new introductory section for customers focuses on the principle that “no specific customer type automatically presents a higher risk of [Money Laundering and Terrorist Financing] or other illicit financial activity[,]” and that BSA/AML compliant banks “are neither prohibited nor discouraged from providing banking services to any specific class or type of customer.”

This principle is one that financial institutions should emphasize in their BSA/AML risk assessment as well as in policies and procedures related to customer due diligence. Many financial institutions make the mistake of automatically classifying customers as high risk merely because they fit into a specific customer type listed in the FFIEC Manual. The institutions classify these customers without considering other risk factors such as the location of the customer and their counterparties, products and services utilized by the customer, amounts or frequencies of transactions, and external factors such as negative new results and open-source searches.

A bank’s procedures for understanding the nature and purpose of customer relationships (i.e., customer due diligence) must be designed to develop customer risk profiles and should not rely solely on customer type as the deciding factor.

Reach out to Stout professionals to learn more.