AML/BSA Compliance in Mortgage: Strengthening Accountability

The Residential Mortgage Loan Originator (RMLO) industry has experienced a remarkable transformation since the extension of Anti-Money Laundering AML and BSA compliance requirements in 2012. However, concerns persist among AML/BSA professionals regarding the industry's overall compliance awareness and commitment. Unlike other financial sectors, such as securities or futures, the RMLO industry lacks a national self-regulatory organization. This has raised concerns about some RMLOs disregarding their compliance obligations or merely paying lip service to AML requirements. In this blog post, we explore the challenges faced by the RMLO industry and the recent efforts to drive compliance through state banking regulators and commercial banks.

1. Compliance Obligations and Independent AML Performance Tests: AML professionals have expressed concerns about RMLOs' varying levels of compliance awareness and commitment to maintaining effective AML programs. Many RMLOs choose to forgo independent AML performance tests, potentially undermining the effectiveness of their AML programs. The absence of a national self-regulatory organization exacerbates this issue, as there is no central body to enforce compliance standards uniformly across the industry.

2. State Banking Regulators' Role: State banking regulators have recognized the need for stronger AML compliance within the RMLO industry. In response, a growing trend has emerged, requiring RMLOs to demonstrate the completion of an independent AML audit before granting or renewing licenses to conduct business within the state. This regulatory action aims to ensure that RMLOs maintain up-to-date and effective AML programs, fostering a culture of compliance and accountability.

3. Commercial Banks as Catalysts for Compliance: AML professionals believe that commercial and warehouse banks may play a significant role in driving BSA and USA PATRIOT Act compliance within the RMLO industry. These banks, which often maintain business relationships with mortgage lenders, have the power to influence industry practices. It is possible that commercial banks may choose to suspend relationships with mortgage lenders who have not undergone independent AML performance tests, thereby encouraging RMLOs to prioritize compliance and strengthen their AML programs.

Conclusion: While challenges persist, the RMLO industry has shown significant progress in enhancing AML compliance since 2012. However, the absence of a national self-regulatory organization highlights the need for greater industry accountability. The recent efforts by state banking regulators to mandate independent AML audits for licensing or renewal demonstrate a positive step towards ensuring ongoing compliance. Additionally, the influence of commercial banks can serve as a catalyst for driving adherence to AML requirements among RMLOs. Continued collaboration between regulatory bodies, industry professionals, and RMLOs is crucial to strengthening AML compliance, safeguarding the financial system, and maintaining the integrity of the RMLO industry. By prioritizing compliance and embracing independent AML performance tests, RMLOs can proactively demonstrate their commitment to AML standards and protect the industry's reputation.

1. FinCEN's Guidance on Anti-Money Laundering Program Requirements - This page provides information on the AML program requirements for financial institutions, which would include RMLOs.

2. The Bank Secrecy Act (BSA) - This page provides a history of the BSA and its requirements, which are relevant to RMLOs.

3. The USA PATRIOT Act - This page provides a summary of the USA PATRIOT Act, which expanded the scope of the BSA and is relevant to RMLOs.

4. The Conference of State Bank Supervisors (CSBS) - The CSBS is a national organization of bank regulators from all 50 states. They could provide information on state-level requirements for RMLOs.

5. The National Mortgage Licensing System (NMLS) - The NMLS is the system of record for non-depository, financial services licensing or registration in participating state agencies, including the District of Columbia and U.S. Territories.

6. The American Bankers Association (ABA) Guide to Independent Anti-Money Laundering Program Audits - This guide provides information on independent AML audits, which are a key part of an effective AML program.