ABA Banking Journal - February 2012 - (Page 44)
ABA COMPLIANCE CENTER | INbOx
When and how often must board OK policies?
Q. We are an FDIC-regulated community bank. During our last exam it was strongly recommended that we create policies and procedures for all compliance-related regulations and laws. Now that these policies are drafted, I am concerned about how often our board will need to review and approve them. Our processor states that not all regulations require a policy— but that if you choose to create a policy it requires annual approval by the board. That could be burdensome. A peer at another bank suggested that the board review all policies every three years or as needed. Is there any guidance available on this issue? A. There are no statutory requirements and I am not aware of any regulatory requirement—with the exception of BSA/AML and FACTA/Red Flags—that the board should review and approve compliance policies annually. (Note, however, that the Basel II compliance statement recommends annual review and approval of a bank’s compliance program, which would include its policies.) Please note: New policies should be presented anytime there is a change in the law or regulation that impacts the bank. However, what you do and how you do it should be governed—among other things—by the size and complexity of your bank’s operations. Your board is responsible for the bank, so board oversight is vital to effective risk management, and the board has very specific responsibilities. The board should be made aware of any policies that establish guidelines for compliance with laws and regulations. Effective internal controls such as compliance policies are the first line of defense in understanding risk, and ineffective controls can lead to bank failures. At our former bank, all policies were presented to the board annually. If there were no changes, the board merely included in the minutes that the policy was approved. If there were changes, those changes were highlighted in a cover document and the board was made aware of the changes prior to approval. But how you manage this process is up to you and management. If you have strong board committees, those committees can also approve policies and that approval can be noted in the board minutes. (Response provided Jan. 9, 2012.) Demand clauses in executive officers’ loans with your bank Q. Regulation O requires a payable-on-demand clause in loans to executive officers (Section 215.5(d) (4)). We are a statechartered non-Fed-member bank. So we follow the FDIC’s rules, which are not always the same as the Fed’s. The FDIC rule on extensions of credit to insiders (Section 337.3) doesn’t seem to require a demand clause in loans to executive officers. Are we required to have demand clauses in loans to our executive officers? A. Yes. Section 337.3 only exempts non-member FDIC-supervised banks from Regulation O’s .5(b), .5(c)(3), .5(c)(4) and .11. The provision of 215.5.(d)(4) which covers the demand clause is applicable to loans made by FDIC-supervised banks to their executive officers. See http://tinyurl.com/7fsramr (Response provided December 2011.) Can you take back a give-back? Q. A consumer disputed a transaction. We completed the investigation, finalized the provisional credit, and sent the final disposition notice. Then the consumer called and said that he did authorize the transaction after all. Can we now debit the provisional credit that we provided the consumer even though the investigation has been finalized? A. This is not specifically addressed in Regulation E, but generally speaking, once an investigation is complete and the final actions have been conveyed to the account holder, the institution would not be allowed to automatically “reverse” or debit the provisional credit. There may be actions allowed to recover the funds, but this involves legal issues which require input from those authorized to address the matter. While it may be most prudent to just let this credit go, perhaps this case indicates a flaw in the bank’s investigative procedures if in fact the customer admitted to authorizing the transaction in the first place. (Response provided Jan. 9, 2012.)
Leslie Callaway, CRCM, ABA Compliance Project Manager, and Mark Kruhm, CRCM, ABA Senior Compliance Analyst, and other ABA experts, answer ABA member questions here and in the online edition of Inbox at ababj.com. Member banks may submit questions to: compliance@aba. com. Disclaimer: Our answers do not provide, nor are they intended to substitute for, professional legal advice. Answers were current as of date shown at the end of each item.
44 | ABA BANKING JOURNAL | february 2012
Table of Contents for the Digital Edition of ABA Banking Journal - February 2012
ABA Banking Journal - February 2012
ABA Community Banking
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ABA Banking Journal - February 2012