Hot Topics from Supervision, Regulation, and Credit: Interagency Language on Risk-Focused Approaches

August 20, 2019


Interagency Statement on Risk-Focused Approach to Bank Secrecy and Anti-Money Laundering Supervision

On July 22, 2019, an interagency working group, including the Federal Reserve, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the U.S. Treasury’s Financial Crimes Enforcement Network released a statement on their risk-focused approach to Bank Secrecy Act (BSA)/anti-money laundering (AML) supervision. The approach enables federal agencies to better tailor examination plans and procedures based on the unique risk profile of each bank. The joint statement outlines practices for assessing a bank's money laundering/terrorist financing risk profile, which assists examiners in scoping and planning the examination and in conducting the initial evaluation of the adequacy of a bank’s compliance program. This approach generally allocates more resources to higher-risk areas and fewer resources to lower-risk areas. The working group is focused on improving the effectiveness and efficiency of the BSA/AML regime.

The statement was distributed to institutions supervised by the Federal Reserve in Supervision and Regulation letter SR 19-11.


The Fed's Board of Governors Releases Its Supervision and Regulation Report

July 9, 2019

On May 10, the Board of Governors released its second semiannual Supervision and Regulation Report, which covers the Fed's efforts to tailor supervision and regulation according to the size and complexity of banking institutions.

The report includes an overview of

  • trends in the banking sector
  • regulatory policy work, including pending rules
  • key supervisory approaches, findings, and priorities for each supervisory portfolio, including large financial institutions as well as regional and community banking organizations

Supervision and Regulation Reports are provided in conjunction with Vice Chair Randal Quarles's semiannual congressional testimony.

Information Provided on Risk-Focused Supervision Program

  • The Board of Governors issued Supervision and Regulation letter SR 19-9, about the Bank Exams Tailored to Risk (BETR) program, on June 3. The letter describes a key aspect of the Federal Reserve's risk-focused supervision program for most community and regional state member banks (SMBs) with less than $100 billion in assets.
  • BETR combines data-driven, forward-looking surveillance metrics with examiner judgment to classify the levels of risk at an SMB within individual risk dimensions. These dimensions include credit, liquidity, and operational risk. Examination work programs have been developed for each risk level to assess each risk dimension and align examination staff resources and activities more closely to a bank's risk profile and minimize regulatory burden for the bank.
  • The letter includes a description of BETR's objectives, the surveillance metrics used to determine the scope of an examination, the risk-aligned examination work programs, and the implementation of BETR.