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New York state watchdog sets sights on bank money laundering systems

25 February 2015  |  7057 views  |  0 Wall street sign

The New York State Department of Financial Services (DFS) is planning to step up the fight against money laundering by carrying out random audits of Wall Street banks' transaction monitoring and filtering systems.

In a speech at Columbia Law School, Superintendent Benjamin Lawsky questioned the effectiveness of monitoring and filtering systems used by banks to flag suspicious transactions that could benefit terrorists, drug dealers and other criminals.

Lawsky told his audience that when the DFS ran transactions from a major bank through its own filtering system it found that the firm failed to flag millions of suspicious transactions. Subsequently, a "significant enforcement action" was brought against the bank, which Lawsky did not name but is understood to be Standard Chartered.

The superintendent now wants to do a similar thing with banks that are not already under suspicion, arguing "we believe there are likely widespread problems with transaction monitoring and filtering systems throughout the industry".

The regulator is "considering random audits of our regulated firms’ transaction monitoring and filtering systems, employing the same methodology our independent monitor used to spot deficiencies".

In addition, "since we cannot simultaneously audit every institution, we are also considering making senior executives personally attest to the adequacy and robustness of those systems".

During his speech, Lawsky also reaffirmed his commitment to plans for cyber-security assessments at banks that will cover protocols for the detection of cyber breaches, corporate governance, defences against breaches, and the security of third-party vendors.

Justifying the tough new stance, he told his audience that "we are concerned that within the next decade (or perhaps sooner) we will experience an Armageddon-type cyber event that causes a significant disruption in the financial system for a period of time - what some have termed a 'cyber 9/11.'"

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