At Mortgage Education Institute, we get these questions a lot. “Why do I need a BSA/AML Annual Audit?” Why can’t I do the BSA/AML Annual Audit myself?” Companies feel they are too small and can’t afford to have a BSA/AML Annual Review and Audit by a third-party vendor and often feel that a “self-audit” will suffice. However, you may be putting their mortgage company at risk.

Compliance with the BSA/AML Audit is Not an Option

In March 2011, FinCEN published the Final Rule (76 FR 10508) requiring non-bank Residential Mortgage Lenders and Originators (RMLOs) to establish BSA/AML compliance programs and file Suspicious Activity Reports (SARs). The effective date of this final rule was August 13, 2012. This is the official compliance date for all non-bank mortgage lenders and originators to have a BSA/AML compliance program in place.

Earlier in February 2012, FinCEN issued guidance outlining their expectations of the required compliance programs (FIN 2012-A009) making sure that all non-bank residential mortgage lenders, mortgage bankers, mortgage brokers and mortgage loan originators had clear guidance as to what is required to effectively implement a BSA/AML compliance program.

A BSA/AML program is required to have internal policies, procedures and controls to implement, monitor and identify risks associated with money laundering activities based on the company’s business operations. This includes a designated Anti-Money Laundering Compliance Officer (AMLCO) and annual training for all staff members of the organization.

A risk assessment based on the business operations, locations, and specific products and services determine the level of risk to develop and implement an effective BSA/AML compliance program for each business entity. It also requires an “Annual Review and Audit” of the BSA/AML program to ensure the effectiveness and compliance with regulations.

Why “Self-Auditing” Possess a Higher Risk to Mortgage Companies

Mortgage Education Institute does not consider a self-audit performed by a mortgage company using their own employees meets the regulatory requirements under the BSA/AML “independent review” guidelines. Many state regulators will not concede that a self-audit will meet the BSA/AML requirements.  Other states mandate that the BSA/AML Independent Review and Audit be performed by a third-party. The annual review and audit must demonstrate that the company is taking all the necessary steps to prevent money laundering, and if you are checking yourself, that does not meet the “independent” requirement. 

This is especially true in broker owner small mortgage companies because the “Owner” is often listed as the Anti-Money Laundering Compliance Officer (AMLCO) and the AMLCO cannot perform the independent review, per the BSA-AML regulations. Any officer or personnel that are involved in the BSA/AML compliance efforts cannot perform the independent review and audit function. A qualified staff member may conduct the audit if they can demonstrate the knowledge, experience and authority to identify issues and make effective management changes to correct issues identified during the review and audit.

The objective of an independent annual review and audit is to identify potential issues, identify corrective actions and support a compliant BSA/AML compliance program. Internal audits present a conflict of interest because there may be less objective when looking at the program and how it is implemented into the daily operations of the mortgage company.

Final Thoughts

A clearly identified and effective BSA/AML compliance program is a critical component of all mortgage companies. How you implement and maintain the program reflects on your efforts to protect the mortgage industry from money laundering and other illegal activities. Set your company up for success by using the tools as they are intended by using a third-party compliance service to conduct your BSA/AML Annual Audit. They are aware of the current regulations, the current risks, and can provide valuable feedback on how you can improve your already existing BSA/AML compliance program to keep up with the changes in the mortgage industry.

Please contact us at Mortgage Education Institute with questions, and to see how we can help your company with your Annual BSA/AML Audit, Policies and Procedures, Compliance Trainings, or any of our other Compliance Support Services.