BSA

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KNOW YOUR CUSTOMER ISSUES (KYC)
Presented to the Conference of State Bank
Supervisors and Institute of International
Bankers U.S. Regulatory Compliance Orientation
Program
By Walter J. Mix III, Managing
Director The Secura Group, L.L.C.
550 S. Hope Street Suite 1645 Los Angeles, CA
90071 Tel [phone] Fax (213) 629-
7420 Email wmix_at_securagroup.com Website
www.securagroup.com
July 25, 2006
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Summary of Presentation on KYC Issues

• Banks must have a complete program /
  full implementation.
• KYC how to get started
• Assess the banks BSA/AML risk exposure
• Customer due diligence (CDD)
• Develop a risk rating matrix
• KYC Monitoring

wmix_at_securagroup.com www.securagroup.com
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Banks must have a Fully Integrated/Implemented
KYC Program

• Enterprise Level
• Policies and Procedures
• Risk Assessment
• Sufficient Staffing
• Technology/Software
• Training
• Audit/Testing
• Surrounding documentation Important !
• Continuously Assess
• Proof is in the pudding

wmix_at_securagroup.com www.securagroup.com
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Know Your Customer Issues (KYC)

• Getting Started
• Involve the Board, management, operations, lines
  of business, branches, legal, information
  technology, and others
• Must be a team effort that is enterprise-wide
  and integrates system capabilities, regulatory
  compliance and customer activity
• Must have buy-in from the Board, Senior
  Management and lines of business/departments

wmix_at_securagroup.com www.securagroup.com
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Know Your Customer Issues Risk Profile

• Assess the banks BSA risk exposure
• Examination Guidelines Emphasize Self-Assessments
• Guidelines assume thorough, effective risk
  assessments for all products/services, markets,
  customer types and lines of business
• Document support for the risk assessment
• Failure to conduct an appropriate risk assessment
  requires the examiners to perform the assessment

wmix_at_securagroup.com www.securagroup.com
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Know Your Customer Issues Risk Profile

• Assess the banks BSA risk exposure (continued)
• Market and geography of the banks services
• Products and services the bank offers
• Electronic banking, ACH originations,
  international wire transfers, trade finance,
  transactions with high risk countries, private
  banking
• Significant number of high risk businesses such
  as import/export companies and check cashers

wmix_at_securagroup.com www.securagroup.com
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Know Your Customer Issues CDD

• Customer Due Diligence (CDD) Risk Rate
  Customers
• Consider activities as well as customers
  history
• Consider cash usage (deposits/withdrawals)
• Consider volume of international wires
• Consider transactions to/from high risk
  countries
• Consider non-resident alien accounts - especially
  with significant volume of activity

wmix_at_securagroup.com www.securagroup.com
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Know Your Customer Issues CDD (continued)

• Develop a risk rating matrix
• List the defined high risk customer types
• Develop a rating methodology and assign risk
  ratings such as
• High, Medium, Low
• 1-10
• 1-5
• Determine the frequency of monitoring for each
  risk rating category

wmix_at_securagroup.com www.securagroup.com
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Know Your Customer Issues CDD (continued)

• Identify and code high risk customers
• Identify data the bank already has in place
• Branches or lines of business may already have
  lists and reports
• SIC codes for loan or business customers
• SAR database
• CTR database
• Cash intensive customers
• MSBs using keywords like liquor, check
  cashing, market

wmix_at_securagroup.com www.securagroup.com
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Know Your Customer Issues CDD (continued)

• Code customers/accounts using software or manual
  process
• Tailor the risk ratings to the banks BSA risk
  profile
• Document the entire BSA identification and risk
  rating process
• BSA risk ratings are not stagnant
• Customers/accounts must be periodically reviewed
  and risk ratings modified

wmix_at_securagroup.com www.securagroup.com
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Know Your Customer Issues CDD CIP

• At opening, identify and code high risk customers
  and accounts
• Develop enhanced account opening procedures for
  high risk customers
• OFAC and ChexSystem check is not sufficient for
  a high risk customer like a PEP
• Consider requiring additional information
• Consider if an enhanced approval process is
  appropriate

wmix_at_securagroup.com www.securagroup.com
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Know Your Customer Issues Monitoring

• The frequency of periodic reviews is determined
  by risk rating and risk activity
• Determine, based on risk assessment, the
  parameters for each review
• Target review all activities in a specified time
  period
• Routine review cash or wire activities that fall
  under a rule or above a threshold
• Enhanced review all activities that fall under a
  rule or above a threshold
• Document decisions and parameters

wmix_at_securagroup.com www.securagroup.com
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QA
Banks must have a properly designed, fully
integrated and implemented program. Remember
that the proof is in the pudding! Thank You
wmix_at_securagroup.com www.securagroup.com