SR 11-07 Model Validation

Engagement Period: 3 Months

Background

The client, a foreign banking organization, recognizing the critical importance of their US operations and the need to comply with regulatory guidance regarding their models, engaged us to thoroughly test and identify discrepancies and missing information in the client's AML transaction monitoring system.

Approach

We worked closely with the client on a comprehensive review of the AML compliance procedures and banking products, with a particular focus on transaction data. We performed a detailed examination of the client's CRR, Transaction Monitoring (TM), and Sanctions Screening processes within the client's TM and Screening systems. To facilitate this analysis, we implemented an SQL server environment. This allowed for rigorous testing of the current system logic within the TM system. A series of tests were run, simulating various scenarios related to different types of transactions to assess the system's performance and response under different conditions. This helped identify any potential discrepancies or inefficiencies in the system. In parallel, we conducted a thorough end-to-end examination of the client's transaction data for quality and integrity, ensuring that it was accurate, complete, and reliable. Each data point related to different types of transactions was cross verified against multiple sources, and a series of tests were run to detect any inconsistencies or errors.

Outcome

We successfully presented the results which revealed discrepancies and missing client information in the client's TM system. We also identified overlapping alert results from certain scenarios, suggesting potential rule inefficiencies. Based on these findings, we issued a report that included recommended system adjustments and the removal of overlapping scenarios to improve the efficiency of the client's financial crime detection systems.