Wise gets the Heisman… from the OCC

You may be surprised to hear this – but I’m conflicted a bit on this one. My initial reaction was a sigh of relief because the OCC is keeping their standard of requirements for sound and effective AML programs. But the other side of me, took issues with some of the “why”. I can see where Wise was surprised that they were supposed to 5x (10x?) their compliance team/tech in their application. The other countries they operate in don’t have massive regulatory gaps in application of AML requirements, like we do here in the US. Either their legal team didn’t look at the regulatory landscape and add resources to cover the US-gaps or they relied upon prior “successful” exams as a sign of future compliance standings. Yes, while they had a nominal penalty under CSBS/CA DFPI for some issues, it was not a broad-sweeping severe penalty. Which probably gave them an inaccurate feeling of comfortability, after they “fixed” the issues, in their AML compliance program. We will continue to see issues like this when we are the weakest link – when the US is the lowest friction point to send/receive money – because our laws are outdated and way out of balance with the rest of the world.

The US must update our MSB laws, to include the Exam Manual, and more importantly, Congress must fund the oversight function. Having less than a 100 examiners for over 30,000 non-bank FIs is not enough, and adding CSBS state regulators does not provide a cadence or depth of exams that is needed for higher risk payment companies.

The OCC’s letter was well-written. I appreciate and applaud this crystal clear message – “The fact that the organizers failed to select appropriate directors and management officials with sufficient experience with AML/CFT requirements and operations did not reflect favorably on the application.” I have posted ad nauseum about this within the cascade of consent orders we have seen from all federal banking authorities over the last many years. BUT also, last year when we saw this huge push of charters. Executives and Directors must have AML experience. It is not good enough to have generalized risk or compliance folks. Full stop.

Past behavior is an indicator of future behavior. I don’t think the penalty moved the needle for Wise, which is why the OCC went on to say – “…the services to be provided by WNT present high inherent money laundering, terrorist financing and other illicit finance activity risks, and, collectively, the WNT proposed management and board have demonstrated a persistent inability to sufficiently manage the ML/TF AML/CFT risks presented by WNT’s proposed activities.”

If I were running Wise, I would take this denial, read between the lines, and see it as a warning shot. The remediation they were doing was and is not enough. What else is missing? What other penalties are lurking around the corner if Wise US MSB does not get this right? From AML to sanctions/OFAC… I would take it and run with it. Performing threat landscapes and data inventory across the entirety of the MSB. If Wise wants a real chance at an OCC charter in the future, they will have to SWAT-style a self-imposed gap assessment.

De novo banks – state or federal – must have AML compliance front and center. Not just compliance. Not just risk. We need three distinct areas which requires three distinct skill sets, the hardest to staff at the executive level is the AML function. Don’t find a really good general alphabet soup compliance person who has dabbled in AML. Find a really good AML person, that thinks like a criminal but with really good ethics, that dabbles in compliance or risk. If that person is as good at AML as they need to be, they have capacity to be good-enough at the other less complex areas like compliance and risk. (that might irk some people… but it’s true)

We’ve lived this at Acceleron Bank, In Formation. Years ago, we were the first and only US de novo in formation to have an AML Officer as a true Chief and TWO spots on the board with AML/CTF experience. In the last 18 months, we’ve seen a few other banks put AML experts on their boards and we are happy to see it.

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