Validating AML/Sanctions Models: A Case Study

Last week my white paper on validation of AML/Sanctions model was published by ACAMS. The download link:

The unique items discussed in the paper were:

1. Explanation of the idea that why a Transaction Monitoring system is a model.

2. Through unambiguous examples the paper explains the importance of the Risk Assessment report in the validation of AML models.

3. Through prescriptive examples, this paper explains

    ·    How by Leveraging Bank’s AML Risk Assessment and regulatory literature material like FFIEC BSA/AML Examination Manual to identify Bank’s relevant red flaggable customer behavior.

    ·    Conversion of those customer behavior into programming codes to identify them in the Bank’s transactions database.

    ·    Developing test cases/examples to explain the identified issues and their materiality in a logical sequence to the stake holders.

4. This paper also explains how Sanctions Screening model can be validated and benchmarked.

This white paper provides the validator with approaches he can use to gain an in-depth understanding of banks’ customer demographics, product profiles, and customer behavior with respect to the products they use. We discuss using data analytics, what steps the validator can take to ensure that the existing rules and assumptions of the model are adequately capturing the risks described in the bank’s risk assessment document.

Using the approaches discussed in this paper, the validator can model and review customer behavior and investigate whether the existing AML models are adequate in capturing any suspicious patterns. Based on the respective bank’s demographics and product offerings, the suggested approaches can be easily enhanced or modified.

Please feel free to post comments/suggestions.


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