As regulatory legislation changes and AML processing environment continues to evolve, an increased focus on qualitative performance are driving the need for AML Model Validation within Banks and Financial Institutions.
These factors together r with the risk for financial crimes – money laundering to happen means that now, more than ever, the need of having a comprehensive AML Model Validation strategy is an important component of any Financial Institution’s overall AML strategy.
Regulators, International Standardization Organizational and AML Association related to AML such as Financial Action Task Force (FATF) and Office of the Comptroller of the Currency (OCC) provide guidelines to AML/CFT risk and AML/CFT risk management models. One of most important processing principles that Financial Institutions require to satisfy Regulators is the Validation of AML Model(s) in use. Questions on whether Financial Institutions are managing their AML risks adequately and efficiently and how their risk is verified and validated have been raised.
ACAMS provides a White Paper to help AML/CFT personnel to address the most common challenges regarding the AML Models Validation.
An AML Model Validation includes a thorough review of both Financial Institutions’ documentation and system.
- Policies: Risk assessment, BSA/AML and monitoring scenarios.
- Procedures: Case review, RFI, SAR and other regulatory reports filling.
- Business Requirement: Data mapping, data input, parsing and controls.
- Input: Data mapping, data accuracy, truncation and formatting.
- Process: Baseline, rules, customer profiles and statistics.
- Output: Aleuts and cases, logs and verification, statistics.
- Reporting: Clear identification of risks, gaps, false positive management
How an AML Model Validation is conducted is the most important aspect of the test – validation process. An anti-money laundering model validation is not the same as a credit risk model. AML Model Validations are independent and are completed by the experts who understand the use of a model.
The life cycle of an AML Model Validation includes the steps:
- Model governance review
- AML scenario coverage analysis
- AML documentation review
- AML system review
- AML scenario logic validation
- AML scenario threshold setting validation
- AML Model input assessment
- ML Model output review, ongoing monitoring and reporting
As an AML Industry Leader, our model validation has always been and continues to meet the requirements of even the most stringent regulations and our model validation reports have successfully passed our clients examinations.