New York’s superintendent of financial services, Benjamin Lawsky, floated the idea this week of having senior executives sign off on the adequacy of their institution’s anti-money laundering systems.
In a speech at Columbia Law School Wednesday, the state’s top financial regulator said that the idea was modeled the Sarbanes-Oxley approach to accounting fraud and could be paired with random audits of regulated firms’ transaction-monitoring and filtering systems to better combat criminal activity.
“A whack-a-mole approach–simply bringing enforcement actions when we find problems–is not, by itself, enough,” he said in prepared remarks, adding that there were likely widespread problems with monitoring and filtering systems throughout the financial services industry.
An audit figured in the enforcement action taken against one large bank last year, he said. His office installed an independent monitor at the bank, which had been suspected of having faulty filters, and found it failed to flag millions of suspicious transactions.
“We basically ran the company’s transactions through our own filtering system and compared the results,” he said. “In the past, regulators have largely relied on self-reporting by firms that discover–one way or the other–that banned transactions occurred for some reason.”
He said problems with monitoring and filtering were the result of inadequate or defective design or programming of the monitoring and filtering systems, faulty data input, or a failure to regularly update these detection scenarios; or they resulted from “willful blindness or intentional malfeasance by bank management.”
But failure to detect suspicious transactions enabled terrorists, drug dealers and other violent criminals, he said.
“Without moving massive amounts of money around the globe, international terrorism cannot thrive,” Lawsky said.
“We expect to move quickly on these ideas and–to the extent they are effective–we hope that other regulators will take similar steps.”
