By Jessica Caballero, CRCM, Senior Manager of Strategy and Evangelism, Banker’s Toolbox 

Joint Statement Offers Support and Guidance for New Innovation Pilot Programs

On December 3, 2018, the Fed, FDIC, FinCEN, NCUA and OCC (the Agencies) collectively issued a statement showing strong support for innovation in the fight against money laundering and terrorist financing. The joint statement aims to encourage responsible innovation to protect our financial system from illicit financial activity.

In the statement, the Agencies confirm that there will be no criticism for financial institutions operating an effective BSA/AML compliance program commensurate with their risk profiles that do not want to pursue innovative technologies to mitigate risks. The statement does, however, provide some safe harbor to institutions that are open to experimenting with new innovation pilot programs.

It is clear that the regulators see the need for technical innovation to catch and stop bad actors. They also are seemingly aware of the underlying fear from some institutions that they will receive regulatory scrutiny for dabbling in these emerging technologies. That fear is preventing institutions from taking the leap into experimental technologies such as artificial intelligence and digital identity technologies. As such, the regulators are opening the gates, and providing institutions an avenue to pilot new technology.

The boldest and most exciting piece of the statement is, “pilot programs in and of themselves should not subject banks to supervisory criticism even if the pilot programs ultimately prove unsuccessful. Likewise, pilot programs that expose gaps in a BSA/AML compliance program will not necessarily result in supervisory action with respect to that program.” For example, if you institute emerging technology that allows for machine learning that happens to uncover previously missed suspicious activity, the regulators will not necessarily criticize the institution for a missed or late SAR filing. Instead, the regulators will evaluate the existing automated monitoring program independent of the pilot to gauge its effectiveness. Therefore, if your program was solid before taking on a pilot program, you should be safe from criticism in most cases. That removes the majority of the fear and uncertainty associated with these pilot programs and paves the way for more creative innovation with live data from real institutions.

While this is a huge step for regulatory innovation, it does not relieve institutions taking on a pilot of their regulatory responsibilities. Appropriate controls and oversight are required to ensure compliance with all applicable laws and regulations including information security issues, third-party risk management, and compliance with other privacy and customer notification regulations. Additionally, the institution must closely monitor the impact of the pilot to its program and do extensive due diligence when deciding whether the incumbent program, or pieces of it, can be replaced by the piloted technology.

Regulators request early engagement if you are considering participating in a pilot. Therefore, if you are talking to a vendor about participating, you should contact your regulator to get their opinion, guidance, and buy-in before getting too deep into the process. The agencies are enabling this so that they can learn as well.

This news is great news for Banker’s Toolbox and our customers. We are always looking to partner with those innovating within the RegTech industry. We have several pilots ready to launch and more to come. We hope that the results of these targeted pilots will result in product enhancements that are eventually available for all Banker’s Toolbox customers. Now, with the regulators on our side, we can all work together to stop the exploitation of our financial system.

If you would like to learn about our pilot program or are interested in participating, reach out to your Banker’s Toolbox team and they will point you in the right direction.  You can read the statement in its entirety here.


– Jessica Caballero, CRCM

Caballero is a former OCC Examiner and currently Senior Manager of Strategy & Evangelism at Banker’s Toolbox. Banker’s Toolbox is the leading enterprise risk management solution for financial institutions, offering a suite of products to help mitigate risk and streamline compliance. The Banker’s Toolbox team, a unique combination of seasoned bankers, former regulators, and information technology consultants, specializes in designing, developing, and implementing risk management solutions while providing unparalleled customer service.