This structure is consistent across all regulations

  • BSA / AML

  • OFAC/ Sanctions

  • Fraud Testing

  • FCRA Testing

  • FCPA / ANTI-BRIBERY TESTING

  • MODEL RISK (SR 11-7)

  • THIRD-PARTY RISK (FINCRIME VENDORS)

  • GOVERNANCE & OVERSIGHT

  • ABC

  • KYC / CDD

  • Transaction Monitoring

  • QA & Validation

— Former Customer

Financial Crimes & Regulatory Testing, Built the Way Regulators Think

I design financial crimes testing programs by starting where regulators start: the regulation, the risk it creates, and how controls fail — not just whether a box was checked.

My framework translates regulatory requirements into inherent and residual risk, maps expected and actual controls, defines how each control should be tested, and documents executable test steps and failure modes across AML, sanctions, fraud, and consumer protection.

The result is a single, defensible testing universe that supports regulator exams, audit committees, and executive decision-making.

Designed for global banks, complex regulatory environments, and high-risk financial activity.

How I Approach Financial Crimes Testing

Financial crimes testing is an assurance discipline. Like accounting, it is designed to test both completeness and accuracy — applied to regulatory obligations instead of financial statements.

Why This Sequence Matters

This sequence is intentional. Regulators do not start with testing results — they start with the rule, the risk it creates, and whether controls are designed and operating effectively to mitigate that risk.

Testing that skips directly to samples or outcomes without anchoring back to regulation and risk produces false comfort and missed exposure.

Tracing vs. Vouching (Completeness vs. Accuracy)

In financial crimes testing, completeness is tested by tracing activity forward — from customer or transaction, through controls, to regulatory outcomes.


Accuracy is tested by vouching backward — from reported outcomes to supporting evidence and underlying activity.

Why this matters

Regulators routinely find deficiencies where testing focuses on outcomes without validating completeness, or where samples are reviewed without confirming population coverage. Tracing and vouching together provide defensible assurance that regulatory obligations are both fully captured and accurately executed.

BSA / AML Testing Playbook (Example)

Below is an example of how this framework is applied to BSA / AML obligations in practice.

Regulatory Anchor

  • Primary regulation: Bank Secrecy Act (31 CFR Chapter X)

  • Regulators: FinCEN, Federal Reserve, OCC, FDIC

  • Regulatory objective: Detect, prevent, and report suspicious activity and illicit financial behavior

Key Risk Areas

  • Failure to identify suspicious activity

  • Incomplete transaction monitoring coverage

  • Ineffective customer risk rating

  • Untimely or inaccurate SAR filings

  • Weak escalation and case management controls

Inherent Risk Assessment

Inherent risk is driven by:

  • Customer types and geographies

  • Products and services offered

  • Transaction volume and velocity

  • Use of automated monitoring models

  • Reliance on third-party data sources

High inherent risk requires broader coverage and deeper testing.

Expected Controls

  • Customer risk rating and segmentation

  • Automated transaction monitoring scenarios

  • Alert generation and queue management

  • Analyst review and escalation procedures

  • SAR decisioning, preparation, and filing

  • Management oversight and quality assurance

Actual Controls Evaluated

  • Automated monitoring rules and thresholds

  • Case management workflows

  • Manual analyst review and disposition

  • Supervisory review and approval

  • SAR filing and FinCEN submission controls

Controls are classified as automated or manual to determine testing approach.

Residual Risk Determination

Residual risk reflects:

  • Control design effectiveness

  • Control operating effectiveness

  • Degree of manual judgment

  • Volume of exceptions or overrides

Residual risk directly informs testing frequency and depth.

Testing Strategy

Testing is designed to address both completeness and accuracy:

  • Tracing (Completeness):

    • Start with customer or transaction populations

    • Confirm coverage by monitoring scenarios

    • Verify alerts are generated and reviewed

    • Confirm escalation to SAR decisioning where appropriate

  • Vouching (Accuracy):

    • Start with SARs and closed cases

    • Validate supporting transaction data

    • Confirm rationale, documentation, and approvals

    • Trace back to underlying customer activity

Testing Methodology

  • Automated controls:

    • Eligible for 100% population testing using system data

  • Manual controls:

    • Risk-based sampling using judgmental or statistical methods

  • Judgmental decisions:

    • Scenario-driven review and rationale assessment

Sample Test Steps

  1. Obtain population of in-scope customers and transactions

  2. Confirm inclusion in monitoring scenarios

  3. Recalculate alert logic and thresholds where applicable

  4. Review alert disposition and escalation timeliness

  5. Validate SAR decision rationale and documentation

  6. Confirm SAR filing accuracy and timeliness

  7. Assess management review and QA results

Evidence Retained

  • Transaction data extracts

  • Alert and case logs

  • Analyst notes and escalation records

  • SAR filings and confirmations

  • Management review and QA reports

Failure Modes Addressed

  • Transactions not captured by monitoring

  • Alerts improperly closed

  • Escalations delayed or unsupported

  • SARs not filed when required

  • Insufficient documentation to support decisions

Outcome

A defensible testing conclusion that demonstrates:

  • Full population coverage

  • Accurate regulatory reporting

  • Traceability from regulation to evidence

  • Readiness for regulatory examination