Compliance Question of the Week

In today’s banking environment as soon as one big new regulation is implemented another pops up. Our compliance resources help your community bank stay one step ahead of the regulators.

Regulations and Guidance

Question: How can we validate that our AML software system is accurately working?

ANSWER:

The FFIEC BSA/AML Examination Manual describes the examination procedures your bank needs to perform to ensure that the system is accurate and appropriately identifying suspicious activity.

As part of the independent testing the bank should:

  • Evaluate the system’s methodology for establishing and applying expected activity or filtering criteria.
  • Evaluate the system’s ability to generate monitoring reports.
  • Determine whether the system filtering criteria are reasonable and include, at a minimum, cash, monetary instruments, funds transfers, and other higher-risk products, services, customers, or geographies, as appropriate.

Reference: FFIEC BSA AML Examination Manual

Q&A Archives

ANSWER:

There are numerous risks that may arise from an institution’s use of third parties.

Some of the risks are associated with the underlying activity itself, similar to the risks faced by an institution directly conducting the activity.

Other potential risks arise from or are heightened by the involvement of a third party.

Failure to prevent or mitigate these risks can expose an institution to:

  • supervisory action,
  • financial loss,
  • litigation,
  • reputation damage, and
  • may even impair the institution’s ability to establish new or service existing customer relationships.

Some of the risks that may arise from a relationship with a third party include:

  • compliance risk,
  • reputation risk,
  • strategic risk,
  • operational risk,
  • transaction risk,
  • credit risk, and
  • country risk.

Reference: FDIC Compliance Examination Manual - March 2017, VII-4.2


ANSWER:

In general, ADA states that guide/service animals are to be permitted in buildings. However, the FAQ states the ADA does not require some entities to revise their policies regarding permitting animals. To determine whether the bank is exempt from the requirements for service/guide animals, review the ADA as well as state and local/municipal laws which may be more protective of people with disabilities.

Reference: 2 U.S. Code Chapter 126 -[42 U.S.C. 12101] Equal Opportunities for Individuals with Disabilities; Pub. L. 110–325 See also: Frequently Asked Questions about Service Animals and the ADA www.ada.gov


ANSWER:

No. Regulation Z only refers to 1st liens when it comes to escrow requirements for HPMLs. There is nothing in the rule or commentary to suggest that it is the banks responsibility to perform due diligence on the first lien loan, even if the first lien is at the same financial institution. 

Reference: 12 CFR 26.35(b)


ANSWER:

Fair lending laws contain provisions to address predatory lending practices such as inadequate disclosure - the practice of failing to fully disclose or explain the true costs and risks of loan transactions.

Other predatory lending examples include:  

  • Collateral or equity “stripping”: The practice of making loans that rely on the liquidation value of the borrower's home or other collateral rather than the borrower's ability to repay.
  • Risky loan terms and structures: The practice of making loans with terms or structures that make it more difficult or impossible for borrowers to reduce their indebtedness.
  • Padding or packing: The practice of charging customers unearned, concealed, or unwarranted fees.
  • Flipping: The practice of encouraging customers to frequently refinance mortgage loans solely for the purpose of earning loan-related fees.
  • Single-premium credit insurance: The requirement to obtain life, disability, or unemployment insurance for which the consumer does not receive a net tangible financial benefit.

Reference: OCC Fair Lending Handbook

ANSWER:

The Bank Protection Act requires each bank to implement a written security program that includes procedures for opening and closing the bank, how to respond during and after a robbery, security devices such as alarms, vault, and tamper resistant locks on doors and windows. Each bank must also designate a security officer to oversee the security program who is also responsible for reporting.

Reference: FED 12 CFR 208.61; OCC 12 CFR 21; FDIC 12 CFR 32

ANSWER:

The specific availability policy disclosure must include:

  • A summary of the bank’s availability policy;
  • A description of any categories of deposits or checks used by the bank when it delays availability;
    • How to determine the category; and
    • When each category will be available for withdrawal;
  • A description of any exception that may be invoked, including the time following a deposit that funds generally will be available for withdrawal and a statement that the bank will notify the customer if the bank invokes one of the exceptions;
  • A description of any case-by-case policy of delaying availability that may result in deposited funds being available for withdrawal later than the time periods stated;
  • A description of how the customer can differentiate between a proprietary and a nonproprietary ATM, if the bank makes funds from deposits at nonproprietary ATMs available for withdrawal later than funds form deposits at proprietary ATMs.

If a bank that has a policy of making deposited funds available for withdrawal sooner than required by this subpart (229.16) may extend the time when funds are available up to the time periods allowed under this subpart (229.16) on a case-by-case basis, provided the bank includes the additional information in its specific policy disclosure. See 229.16(c) for additional information.

Reference: 12 CFR 229.16(b) and (c)

ANSWER:

From the OCC examination manual:

In no case, however, should tellers and other employees, while located in the routine deposit taking area, such as the teller window, make general or specific investment recommendations regarding non-deposit investment products, qualify a customer as eligible to purchase such products, or accept orders for such products, even if unsolicited. Tellers and other employees who are not authorized to sell non-deposit investment products may refer customers to individuals who are specifically designated and trained to assist customers interested in the purchase of such products.

Reference: OCC Retail NDIP Examination Procedures, 2015, page 126.

ANSWER:

If an advertisement is made through one of the following media, it need not contain the information required by other parts of 12 CFR 1030.8(c) and (d):

  • Broadcast or electronic media, such as television or radio;
  • Outdoor media, such as billboards; or
  • Telephone response machines.

Reference: 12 CFR 1030.8(e)(1)

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