2020 Journal of Community Bank Studies

2020 COMMUNITY BANK CASE STUDY COMPETITION

One commonly accepted definition of community banks is that they have less than $10 billion in assets. There are just above 5,000 of them in the country. Between 2014 and 2018, they collectively spent $4.9 billion in regulatory costs (Reosti). In addition, many community banks do not have the capability of using expensive BSA software to address the growing complexities of the regulations and, consequently, rely on manual processes. Many community banks feel the outdated framework is more of an exercise in completing the reports, rather than an efficacious process to limit financial crimes. Reports are labor-intensive to complete, and most do not result in criminal indictments. Community banks, such as C&N, believe policy reform should work toward modernizing BSA/AML regulations to accommodate banks that do not have the sizable resources to spend on regulatory costs. Part VI of this report will explore more closely what other legislative measures C&N feels would benefit the bank most effectively.

Many community banks feel the outdated framework is more of an exercise in completing the reports, rather than an efficacious process to limit financial crimes.

of the USA Patriot Act in 2001. This legislation expanded the regulatory requirements for all banks to combat money laundering and block all terrorist financing. In addition, the Patriot Act gave financial institutions an outline on how to organize their compliance programs most effectively. There are five main pillars that all banks and credit unions must adhere to regarding BSA/ AML requirements: maintaining a formal written policy, having dedicated compliance personnel, using independent testing of the institution’s BSA/ AML program, and ensuring that all appropriate employees of the bank receive proper training, and maintaining customer due diligence (CDD). The fifth pillar became effective July 2016 and deemed that all financial institutions comply by May 2018 (“FinCEN Adds”). Part II and III of this case study will further examine how C&N complies with BSA/ AML requirements by explaining the processes the bank uses to conduct its risk assessment and how it structured its compliance function.

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