Aug 17

Five questions to ask yourself about your DFS certification readiness

New requirements from the New York Department of Financial Services (DFS) provide an opportunity to strengthen sanctions quality assurance and testing programmes

Last year, the New York Department of Financial Services (DFS) announced the adoption of a new risk-based anti-terrorism and anti-money laundering regulation. The rules, which apply to banks operating in New York State, require banks to maintain appropriate watch list filtering and transaction monitoring programmes. Under the new rules, banks also have to ensure that their systems are working correctly and attest that their filtering and transaction monitoring programmes are compliant.

A new SWIFT info paper – Five questions to ask yourself about your DFS readiness – explains the new rules and how banks can see them as an opportunity to strengthen sanctions quality assurance and testing programmes.

The paper also explains how Sanctions Testing – SWIFT’s community based tool for testing sanctions filters and lists and optimising screening performance – can help banks streamline this process while addressing regulatory requirements.

Understanding the DFS requirements

The new regulation has four main components. Banks need to:

1.    Maintain an appropriate transaction monitoring programme

2.    Maintain a watch list filtering programme

3.    Perform tests and ongoing analysis to ensure that systems are working correctly

4.    Submit an annual board resolution or senior officer compliance finding stating that the bank’s transaction monitoring and filtering programmes comply with the regulation

As outlined in the paper, these requirements imply a number of questions:

1.    Should banks tackle testing and assurance in-house or work with an external provider?

2.    Do filter suppliers provide reporting to support such self-certification?

3.    How can banks align procedures with their internal risk appetite, policies and standards – and how can they demonstrate that they have done so?

4.    How can banks compare what they are doing against the rest of the industry?

5.    How can banks inspire confidence in their board and overseer that screening systems are functioning properly?

Understanding the answers to these questions and the options available can help banks comply with the new requirements, as well as derive related business and operational benefits in doing so.

For example, by understanding how their screening systems work, banks may be able to tune their systems more effectively and thereby reduce false positives. By documenting how their systems work, banks may also be able to make their compliance regimes more robust, resulting in greater confidence during regulatory examinations.

As such, the new requirements can enable banks to reduce costs while improving the effectiveness and efficiency of their whole environment.

For more information, download the info paper. You'll be able to further discuss this new regulation and its implications at Sibos 2017, which takes place in Toronto between 16 and 19 October.