Ensuring high-quality standards in any organization is an essential ingredient that must be rooted within a company’s Quality Management Program (QMP) – a program that creates a framework to ensure quality. The QMP is defined by the organization and incorporates its standard operating procedures (SOP), training initiatives, audits and continuous improvement, Quality Assurance (QA) processes and Quality Control (QC) processes. While both the QA & QC processes are embedded in the QMP, they have similar features such as a high commitment to quality, but they also have distinct differences.
Quality Control is like looking through the front windshield of your car, actively steering the current analysis to ensure it adheres to SOP standards. In contrast, Quality Assurance is akin to checking the rearview mirror, looking back at past processes to confirm compliance and drive continuous improvement. You can say that the QC process involves following the Standard Operating Procedures (SOPs) and quality standards that have been identified and established during the QA process. While both QA and QC are interrelated processes and share some of the same traits, they each have a specific function, and the focus of this article is to spotlight the QC perspective for Transaction Monitoring.
Understanding Quality Control Through the Lens of the Five Pillars
A robust Anti-money Laundering (AML) compliance program is essential for all financial institutions. The AML program is not a choice, but rather a mandate set forth by regulations defined by the Financial Crime Enforcement Network (FinCEN). As part of the regulatory framework, there exist the well-known five pillars of an Anti-money laundering program that include the following and how QC fits snuggly with those pillars.1
- Development of Internal Policies, Procedures, and Controls: QC plays an essential role in ensuring that the institution’s policies and procedures are efficiently implemented and adhered to, thereby maintaining the integrity of the AML program.
- Designation of a Compliance Officer: For a Compliance Officer appointed by the board, the QC process and its results are crucial. They ensure the organization adheres to regulatory standards and mitigates risks, directly supporting the board's mandate for oversight and governance. QC also provides essential documentation that demonstrates accountability and compliance efforts, which is vital for meeting board expectations and satisfying regulatory audits.
- Ongoing Employee Training: QC can help identify areas where training and remediation are needed by monitoring employee adherence to procedures and pinpointing gaps in expertise or performance.
- Independent Testing and Auditing: QC processes provide significant input for independent testing and examination by identifying areas of risk. This helps confirm that the AML program's controls are operating as expected.
- Customer Due Diligence (CDD): QC ensures that customer information gathered during the CDD process is executed properly, accurate, complete, and up-to-date. Any variances and irregularities are thoroughly investigated.
Thus, a QC program is integral to the effective operation and continuous improvement of each of the five pillars of an AML program. The overall objective of the QC program is to ensure completeness, consistency, accuracy, clarity, and correctness, leveraging these qualities to help fight against money laundering and fraud.
Understanding Transaction Monitoring Through the Lens of Quality Control
It is imperative for financial institutions to maintain strong internal controls, as inadequate data quality can lead to imprecise risk assessments, overlooked suspicious activities, and both false positives and false negatives. These shortcomings can result in serious consequences, including regulatory actions. For example, consider a recent enforcement action where a large bank faced enormous financial penalties, along with the inevitable possibility of reputational damage. Such penalties underscore the critical need for robust compliance programs."
Below are some of the bank’s failures as listed in the Civil Monetary Consent order2:
- The bank's shortcomings include but are not limited to, the inability to implement and maintain an AML program, resulting in gaps in policies, procedures, and internal controls.
- The bank had insufficient resources, including a BSA officer who served merely as a figurehead because the board of directors did not empower the officer with appropriate authority, independence, and access to adequate resources such as personnel and technology. Consequently, the AML program suffered from inadequate controls and accountability.
- The transaction monitoring system upgrade was postponed due to the bank's recognition of resource inadequacies.
- Certain transaction types, such as ACH, remote deposit capture (RDC), and peer-to-peer (P2P) channels, were not successfully monitored.
As you can imagine, these critical compliance failures highlight the bank's vulnerabilities, notwithstanding the reputational damage caused by significant gaps in procedural clarity and compliance checkpoints.
QC is like a funnel. A vast amount of information is poured in at the top, but only a carefully selected sample emerges through the narrow stem for evaluation. This process ensures that a sample size of relevant data is scrutinized to maintain high standards. The QC process should have a specific and focused scope. It should utilize metrics to assess whether a product meets the institution's quality benchmarks. For example, these metrics may involve asking specific questions with weighted scoring, where the answers are reflected in the analyst's dispositions. Metrics might involve taking a smaller sample of data for the most senior analysts and a larger sample for junior or newly onboarded analysts. QC should concentrate on detecting defects and providing clear corrective actions, such as ongoing training. This approach enhances the analysts' understanding and alignment with the institution's quality standards. Additionally, QC should communicate errors and process improvements effectively through a systematic reporting mechanism. Clearly conveying how the institution and its analysts are performing against the metrics may spark considerations for additional resources and improve operational efficiency.
QC will promote a continued dialogue with the different QMP team members and keep the institution’s BSA/AML officers and board of directors diligently informed through the QC reports. By ensuring adherence to established standards and proactively identifying areas for improvement, QC not only enhances the effectiveness of the AML compliance program but also contributes to the institution's overall risk management strategy. As financial institutions navigate an increasingly complex regulatory landscape, a robust QC process is essential for maintaining compliance, building trust, and safeguarding the institution's reputation. Thus, QSee-Pro, Ankura's solution to address compliance challenges and strengthen compliance efforts, offers a comprehensive approach that enhances oversight and ensures adherence to regulatory standards.
How Ankura Can Help
The Ankura team can assist institutions by integrating Ankura’s QSee-Pro, to automate the QC process in an era where regulatory compliance and operational efficiency are paramount. QSee-Pro is a game-changer for your organization’s approach to QC. Developed by Ankura, QSee-Pro is a cutting-edge solution offering unparalleled benefits for compliance and operational efficiency. With our expert consultants, combined with the QSee Pro, we are ready to support you with the following:
- Enhanced Compliance: helping organizations meet regulatory and industry standards and reducing the risk of compliance failures and associated penalties.
- Operational Efficiency: a highlighted ability to streamline processes and automate routine tasks.
- Risk Management: identifying and addressing vulnerabilities in transaction monitoring, thereby preventing potential reputational and financial damage.
- Comprehensive Dashboards: provide clear insight into performance benchmarks and areas needing improvement, supporting data-driven decision-making.
- Continuous Improvement: promotes the enhancement of quality standards by identifying training needs and opportunities, aligning with Kaizen principles.
- Adaptability and Customization: tailored to specific organizational needs and making it versatile for a wide range of industries.
Ankura is committed to delivering excellence to its partners, customers, and stakeholders. Our deep expertise empowers clients to navigate the ever-evolving backdrop of regulatory, risk management, and compliance challenges with confidence. We ensure the highest quality in our services, enabling our clients to stay ahead in a dynamic environment. Discover how our innovative QSee-Pro solution can transform your compliance strategy—Ankura is ready to assist you in achieving your goals.
1. 31 CFR § 1020.210 - Anti-money laundering program requirements for financial institutions regulated by a Federal functional regulator or a self-regulatory organization
2. https://www.fincen.gov/sites/default/files/enforcement_action/2024-10-10/FinCEN-TD-Bank-Consent-Order-508FINAL.pdf
© Copyright 2024. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
