This Week in AML

What We Can Learn From Regulatory Orders

This week, Executive Vice President John Byrne, and Creative Director Elliot Berman of the AML RightSource staff discuss a recent consent order between a community bank and the FDIC. During the conversation, they look at the value for all institutions of reviewing regulatory orders to understand the current thinking of the regulators and how to review your BSA program to ensure that it meets expectations.  

What We Can Learn From Regulatory Orders Transcript

Elliot Berman: [00:00:00] Hey, John, how are you this week?

John Byrne: Hey Elliot, I'm doing well and hopefully you're recovered and doing well.

Elliot Berman: I am recovered - the health department has said I can put a mask on and go outside, so yeah, everything's good.

John Byrne: There you go.

Elliot Berman: I saw that the FDIC. issued a consent order for a bank - Park Bank in Sewell, New Jersey. I looked them up, because I didn't know the bank, and they're about $1.9 Billion. This was a pretty detailed consent order - did you see that?

John Byrne: Yeah, I did in part, because the FDIC, I guess they packaged a number of their enforcement and consent orders. And so this was one that like you, jumped out at me. And I think as we always talk about, it's so important for the AML profession to look at enforcement actions of any kind, because thematically, there's always some value there.

So even if you're a large institution and you're not the size of this bank, looking at what the FDIC identified and isolated as problems, I think it's always important to do this and map it to your institution. And a couple of things jumped out at me and they're basic to our understanding of what's important to a program - they talked about board supervision and management. So obviously the culture of compliance, if you will, to make sure that the board has to improve its supervision and direction of the program, which would lead you to believe that perhaps this wasn't the case before, at least not strongly done.

And then on programs - making sure that the bank reviews it's compliance policies and procedures and proves those. So I thought those sorts of things are always important to continue to emphasize with whatever institution you represent, that these are things that the agencies are looking at to see if there are gaps.

Elliot Berman: Yes , this order in many ways, read like a blueprint for an effective program, effective risk assessment, effective internal controls, monitoring, resources, BSA officer, there's a lookback in this order - it's only to January 1st of 2019, so it's not one of them more longitudinal ones, but still a lookback.

So clearly there was some, challenges and then, independent testing, which is of course, a pillar. Resources - I think we're seeing the more recent orders be much more specific that in addition to just having an effective and qualified BSA officer, that you're also looking at appropriate resources, monetary, physical, and personnel, and whether that's systems or staffing or just budgetary support.

John Byrne: Right, and what I would add to that too, in terms of the designated officers - something that sometimes gets lost - is that they said not only did it have to be acceptable to the FDIC and the New Jersey department of banking and insurance, but it had to have the qualifications and then sufficient delegated authority.

So that's always something that we tell BSA professionals - if you're going to take a job, make sure you have the appropriate authority to be an effective AML officer. And this obviously confirms that.

Elliot Berman: Yeah. There was also a piece in here about, adequate documentation for decisions on filing SARS. As I said, pretty much a blueprint for the things that you should be always checking that your program has. Of these elements, nothing shocking in here other than we're still seeing orders like this here at the end of 2020. This is a bank that grew pretty quickly..

John Byrne: Right.

Elliot Berman: And they were at the end of '18, I think their footings were about $1.5B, so that's pretty sporty growth - which is good - but you have to keep your eye on the ball while you're growing.

John Byrne: Hey, and the last thing that you identify with, we talked about this offline, the creation of the director's compliance committee. You saw some unique angles in that requirement.

Elliot Berman: Yeah. So it's not unusual if an organization doesn't have, for example, a risk management committee to require that the board create one, for the purposes of managing their response to the order. But here, one of the requirements is that, none of the members of the committee can be, current or prior employees of the organization.

So that takes the bank president off - because bank presidents are always on the board - and sometimes other senior officers, but this one also, I think was in part, focused on a current director, who's a former senior executive of the bank, who after retirement, either stayed on or joined the board.

Again, being a director is not for the faint of heart. I wouldn't scare people away from it, but you need to understand that the regulators do expect you to be really overseeing - that's your job, oversight - what's going on. And, it's clear here that, the board probably wasn't getting the job done.

John Byrne: Yep. So if you get a chance to take a look. It's in the matter of park bank, on the FDIC website and, Elliot, thanks for taking the time.

I'm, heading out as my middle daughter gets married in a very, cOVID protected space - we're going to have less than 10 people at the ceremony. Originally it was going to be 80... Tough times, but everybody's healthy and looking forward to this and they're looking forward to starting their new life. So I'm excited about heading out there.

Elliot Berman:  You and the family travel safely and give them our best.

John Byrne:  Thanks a lot. Take care.

Elliot Berman:  Yep. You too. Bye bye.