I am currently in the middle of a BSA audit and have discovered that our Security department has elected to list our customers that are publicly traded entities on the Phase II list and are filing biennial renewals on them. Their argument for doing this comes from their belief that Phase I Exemptions (only banks and government entities) do not have to be reviewed annually and that by listing them as Phase II they are assuring that the publicly traded ones are getting reviewed. I think that they should place those publicly traded customers on the Phase I list and start doing annual reviews on them, but my BSA Officer isn't agreeing. Any thoughts, especially on how an examiner might view our current exemption practice?

We had an isolated incident at one of our banks and it was noted as a finding in the examiner's report and had to be revised to a Phase I exemption. The BSA Officer failed to identify it properly as a Phase I entity.

In a manual that I have from AlexInformation, it states "Although it is not required by regulation, we suggest you also review and update information on your listed or Phase I exempt customers.

Our regulator requires us to conduct regular reviews of our Phase I as well. We do simialr due diligence and identical SAR review on Phase I and Phase II...the difference is that we don't file the biennial renewals on the Phase I, as they are not supposed to be filed.

I would think that not having to do a biennial renewal would be a good incentive to change the applicable customers to Phase I. Doing reviews still makes sense though--each of the last couple of years we have had a Phase I company that have been sold and are no longer publically traded, but still qualified for a Phase II exemption.

The reviews typically conducted for a Phase I entity are MUCH less burdensome than those for a Phase II entity. I have actually considered changing my standing exemption recommendation to exempting ONLY Phase I entities.

Thanks for your response. I have found proof in the FFIEC BSA/AML Exam Manual regarding the requirement of annual Phase I reviews. This should be enough to convince the BSA Officer that some changes need to be made.

The requirement for an annual review of all exempt persons is found in section 103.22(d)(4) of the 31 CFR Part 103.

Everyone gets reviewed at least annually.

Phase II exemptions require a biennial continuation filing.