Paperless :CIP FATCA: is it time?

It’s December 2012 and getting ever closer to that dreaded date….

No, not the Mayan-calendar ending, but rather the time when ever-increasing due-diligence requirements—BSA/AML, Dodd-Frank, FATCA, and constantly changing implementation rules for these laws—make it impossible to manage without a comprehensive system. This is a fact made all the more urgent given that every enforcement action we’ve seen the last two years has been rooted in due-diligence shortcomings.

Consider this preview of what to expect over the next twelve to eighteen months: You will see a slew of new rules introduced for BSA/AML. You will contend with FATCA, a brand-new law that will affect every single financial institution in the United States--not just foreign banks.  FATCA, moreover, is morphing into a two-way street that will result in similar laws from many other nations.  You also will have to wrestle with Dodd-Frank, a portion of which dictates the collection of certain information based on Products and Services used by your customers.

Perhaps it’s time to rename the compliance game American Roulette, since that is the game financial institutions will be playing with old-style manual due diligence and enhanced due diligence.  Those not-so-little yellow folders that are so perfectly maintained right up to the second they are inspected by the Federal or State Examiners are the loaded gun and the ever-changing and evolving “expectation” of their contents is the trigger.

Over the years, I have been behind the scenes of hundreds of examinations, some good, and I have come in after some not-so-good ones.  The following three characteristics almost always predict the not-so-good ones:

1.  Lost Documentation

We all know of that mythical creature, that vile little thing, that’s comes the
very night before the examiners to steal documents right out of your CIP Folders.  At least that’s the explanation of the staff, none of whom would ever—never ever ever—take a document out and not put it back… Just can’t happen.

2.  Lack of Buy-in from the Front Office

Which of these rationalizations do you hear most often?

A)    The years (really only days) it takes to collect all that CIP/EDD information prevents me from doing my real job and obviously is the cause all bad things. 

B)      How can I make money for my institution if I am spending my precious time collecting documents for some arbitrary compliance program? My time is  better spent elsewhere.

C)       I talked to my friend at MegaBank and they don’t do this stuff.

D)      All of the above.

3.  Adapting to Moving Goal Posts

Only one thing is certain in Compliance: The requirements will change, and the
“expectation” of the requirements will change, as well.  That’s means going back to the dreaded folders and updating them—over and over and over again.  Not surprisingly, this generates pushback and resentment; finding and communicating strategies to streamline the updating and adapting process is key to gaining cooperation from the Front Office and the people who fill the folders.

Soon, we will ring in a New Year.  Maybe, just maybe, it’s time to finally go paperless—both for more successful and more streamlined Compliance and for everyone’s peace of mind.  What do you think?