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EDD – The Place Where Marketing and BSA Come Together

14 April 2014

Enhanced Due Diligence (EDD) and Customer Due Diligence (CDD) are two areas of close focus of the regulators.  The need to enhance EDD is one of the top citations that we see at the conclusion of BSA examinations.  We see criticism over the trend to have accounts subject to EDD that have numerous Suspicious Activity Reports and continued High Risk monitoring that seem endless.  These accounts often have specific trends of activity that makes them seem unusual or suspicious and it is this activity that draws the attention and scrutiny the BSA department.

There are several concerns that the regulators have raised about these “evergreen” high-risk accounts.  There is of course, the question of when a pattern of activity that repeats itself in a regular intervals becomes something less than suspicious.  There is also the question of whether the financial institution should keep the account if the account holder is regularly engaged in suspicious activity.  On the other hand if the pattern of the customer is truly not criminal and is part of a regular and legitimate business, then important BSA resources are being expended unnecessarily on these accounts.

We note that in many of these cases, additional information on the customer would be of great assistance to the BSA department. The ability to know about the customers’ business and why it works the way it does can completely change the characterization of activity.

A quick example, on of our clients had a customer who was on the high risk lit because several SAR’s had been filed for structuring.  The customer had a habit of depositing around $9,000 every two days.  Of course this appeared to be structuring.  However, once we looked into a little further, we found that the customers’ business insurance required that the customer could only have a certain amount of cash on hand.  The $9,000 deposits were necessary to meet the insurance requirements!

It would be easy to look at this situation and blame the BSA staff for not having done enough research.  However, we noted that one of the things that held back the effectiveness of the BSA staff was lack of intimate knowledge of the customers.  And the best source of that knowledge was the account managers who actually worked with the clients.  Our conclusion has been that this is the place where BSA compliance and cross marketing come together.

The core of any good BSA program is the system’s ability to know its customers thoroughly.  And in point of fact, the core of a strong marketing program is the same.  To effectively cross sell to customers, the expert sales person is able to know the needs of his customer and anticipate how the bank will best be able to meet those needs.  The goals of both the BSA department and business development is essentially the same – KNOW YOUR CUSTOMER.

So Why Can’t We Be Friends?

Too often, because neither department fully understands what the other is trying to accomplish, natural partners become adversaries.  The BSA Department is seen as a group of people who don’t seem to understand that the bank is a for profit business.  “We can’t ask these people questions that will make them mad” say the operations and marketing staff. On the other hand, the marketing department can be seen as the “Bain of the existence” of the BSA department.  Incomplete information leads to additional work and monitoring that might be avoided.

The truth is that with a little work, these two departments can enhance BSA compliance while expanding market share.  As an account officer discovers that he has a client that needs to add RDC to his product base, it is important to let the BSA department know that business has been growing and transactions are now going to change.  Despite the way transactions are changing the actual line of business is still the same and not really a matter for concern.  By the same token, maybe the customer mentions that he has been approached about a new line of business that sounds good, but is unfamiliar (bitcoin anyone?).  A quick check with the BSA Department can help the account officer steer the client clear of harmful sometimes illegal business lines.

We recommend a program that cross trains these two departments in particular.  When one is aware of t what the other is doing the results are tremendous.  For example, at one of our clients, a customer had decided to open his own business and run it out his home.  The business did better than expected and soon the customer was conducting a large number of transaction on his personal account.  These transactions drew the attention of the BSA staff, SARs were filed and within months, the account was being considered for closure.  Fortunately in this case, the BSA Officer and the Account Officer talked about the customer.  When they did it became obvious that a business account and several other potential business products were in order.  Not only was the account NOT closed, but also the bank was able to sell the customer a business analysis account, a revolving line of credit and a business credit card account.


Share a Little


The account opening process and the account updating process provide excellent opportunities for information.  Once that information is obtained, when it is shared a great deal of positive things can happen.  The more you know about your client, the more you can keep the bank safe and your customer happy!


James DeFrantz is a Partner in Atlanta-based financial services industry consulting firm Bank Solutions Group. [email protected]