2020 Journal of Community Bank Studies

2020 COMMUNITY BANK CASE STUDY COMPETITION

learned by Verafin. A potential course of action to improve the flow and quality of information would be to implement a similar system to Verafin across all banks or establish protocols for sharing data among similar systems that various banks use. While banks report SARs, CTRs, and other information to show they are effectively meeting these regulations and help prevent fraud, no information is returned to the banks.

Total Compliance Expense as Percent of Spending (CSBS Survey)

18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 2.00% 2.00% 0.00%

17.70% 15.10% 11.10% 10.90% 9.70%

Percentage

<$100M

$250M - $500M $100M - $250M

$500 - $1B

$1B - $10B

banking institutions compared to larger banking institutions (Dahl et al). The survey by the Conference of State Bank Supervisors found that compliance as a percent of spending decreases from 17.7% for banks with under $100 million in assets to 9.7% for banks with assets between $1 million and $10 million, showing that an increase in asset size decreases the total monetary impact of compliance costs. CNBs total assets in 2019 were $1,432 million putting them in a category where compliance expenses are 9.70% of spending. When this assumption is applied to CNB, we can infer that CNB spent approximately $2.88 million on compliance costs alone in 2019. Information Quality and SAR/CTR Submission CNB currently uses Verafin, a sophisticated Artificial Intelligence (AI) system that records and recognizes customer trends. Trends that show potential threats are then shared with other banks within the Verafin network. Many variables, including those set by BSA/AML requirements, are input by CNB and then suspicious trends based on these variables are

This essentially causes an information barrier and prohibits banks from effectively protecting themselves. If this reported information was redistributed back to the banks, the in-house reporting systems would better recognize suspicious trends and potential fraud. This information would also help banks recognize individuals who have already set dangerous trends at other banks. The implantation of this type of system would be a major step toward ending illicit activities within and through banks, instead of mitigating these activities.

The implantation of this type of system would be a major step toward ending illicit activities within and through banks, instead of mitigating these activities.

20