AML Models: Applying Model Validation Principles to Non-Models

Anti-money-laundering (AML) solutions have no business being classified as models. To be sure, AML “models” are sophisticated, complex, and vitally important. But it requires a rather expansive interpretation of the OCC/Federal Reserve/FDIC1 definition of the term model to realistically apply the term to AML solutions. Supervisory guidance defines model as “a quantitative method, system, or…

AML Model Validation: Effective Process Verification Requires Thorough Documentation

Increasing regulatory scrutiny due to the catastrophic risk associated with anti-money-laundering (AML) non-compliance is prompting many banks to tighten up their approach to AML model validation. Because AML applications would be better classified as highly specialized, complex systems of algorithms and business rules than as “models,” applying model validation techniques to them presents some unique challenges that make documentation especially important.