Financial Institutions

Monday, 30 June 2014

What is a critical vendor? It depends ...

Written by Rehmann Team

Recently, the Office of the Comptroller of the Currency (OCC), Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC) and Federal Reserve have issued updated rules requiring financial institutions to increase their oversight of third-party vendors by determining risks, conducting on-site visits, carefully structuring and reviewing contracts, and remembering that, ultimately, responsibility for third-party failures rests firmly with the bank. This includes failures by other parties with whom the third-party might contract, making due diligence research on a vendor more important than ever. Specifically, OCC guidance on third-party vendor relationships notes that community banks should adopt risk management practices that align with the risk profile and complexity of the third-party relationships, especially those that are involved in critical activities. What qualifies as a “critical activity”?..

Thursday, 24 April 2014

Social media + financial institutions

Written by Jessica Dore, CISA

Like it or not: when it comes to social media, financial institutions must play by certain rules. Social media introduces potential risks to financial institutions, including compliance/legal risk and reputation risk that might be caused by poor due diligence, lack of oversight, or lax control on how, when and by whom social media is used. Because of this, efforts to train employees on the proper use of social media should be appropriate to the breadth of the financial institution’s social media usage to attract, acquire and retain customers. Such training should be developed with participation from specialists in compliance, technology, information security, legal, human resources and marketing...

Monday, 31 March 2014

Is mortgage lending on the way out ... or the way up?

Written by Rehmann Team

The mortgage lending business is in a major state of change due to increasing rates, fewer refinancings, lower margins and more Consumer Finance Protection Bureau (CFPB) regulations. That equation means banks have to seriously consider their mortgage lending business and how well-prepared they are to attract new customers, manage credit risk, improve efficiency, absorb compliance expenses and cut costs to make it an attractive prospect.The Mortgage Bankers Association (MBA) expects a 32 percent decline in mortgage originations during 2014. While purchase originations are expected to increase 9 percent, refinance originations are expected to fall 57 percent...

Monday, 31 March 2014

BSA ... the Mary Jane dilemma

Written by Rehmann Team

The Controlled Substances Act makes it illegal under federal law to manufacture, distribute or dispense marijuana. However, as more and more states legalize the sale and distribution of marijuana for medicinal or personal use, the Department of Justice has said that it is not going to enforce the Act as long as the marijuana sales are not in violation of state law. While there is a lot of discussion about this in and of itself (how can the federal government simply decide not to enforce a law that is on the books?), this situation raises a set of other issues for banks, which are asking: Should we bank with marijuana businesses that are deemed “legitimate and legal” under state law, but are in violation of federal law?..

Friday, 28 March 2014

KYC goes beyond CIP

Written by Rehmann Team

The final rule adopted to implement section 326 of the USA PATRIOT Act is intended to standardize BSA compliance processes and practices by making the existing “Know Your Customer” (KYC) policy the foundation of the section 326 Customer Identification Program (CIP). The final rule includes a comment that Treasury, the Office of the Comptroller of the Currency (OCC) and Office of the Thrift Supervision (OTS) believe that many national banks already have procedures in place that fulfill most of the requirements of the final rule. Are community banks as well prepared? Nearly half of U...

Thursday, 27 March 2014

ACH self-assessment rules

Written by Rehmann Team

Traditionally, the Automated Clearing House (ACH) system is used for direct deposit of payroll and government benefit payments, and for the direct payment of mortgages and loans. Recently, the system has expanded to include one-time debits and check conversions. With this additional customer convenience and ease of moving money comes additional compliance and risk concerns. These new concerns were addressed with the ACH Security Framework, which addresses the minimum security requirements for the protection of non-public personal information...

Weakness in the housing market has led to an increase in the number of vacant, abandoned and foreclosed residential properties, which in turn has increased the potential for banks to report higher levels of other real estate owned (OREO). Since OREO consists of real property held by a bank for reasons other than to conduct its business, it not only brings different operational risks associated with managing real estate versus an impaired loan, but also could signal deteriorating credit (due to a growing level of non-earning assets). As a result, loan reclassification and presentation as OREO can have a significant impact on the bank's financial statement. Recently at issue was the question of when a bank should be considered to have taken physical possession of a real estate property collateralizing a loan, and when the loan should be re-classified...

Friday, 10 January 2014

Social media regulation final rule

Written by Rehmann Team

The Federal Financial Institutions Examination Council (FFIEC) recently issued final guidance to help financial institutions understand how existing supervisory requirements apply to the risks associated with social media. While the guidance does not impose new requirements, it does provide useful tips and references to existing regulations to help banks identify, manage and control risks related to any form of online communication that allows users to share content through text, images, audio and/or video messages. As with all forms of communication, social media brings potential risks: harm to consumers, compliance and legal risk, operational risk and reputation risk that might be caused by poor due diligence, lack of oversight, or lax control on how, when and by whom social media is used. As part of a comprehensive risk management program, social media risk management should be appropriate to the breadth of the institution’s social media usage to attract, acquire and retain customers...

Although BSA/AML reviews have been part of bank examinations since 2002, regulators have placed heightened focus on these issues, to the extent that they have succeeded in securing high profile settlements against financial institutions and prevented mergers due to inadequate BSA/AML policies. The boards of community banks have been forced to accept more direct involvement and responsibility for these programs and processes, too. How can a financial institution and its board work in tandem to ensure it has the right breadth and depth of AML monitoring in place? During a routine examination, examiners will expect to see that a financial institution’s BSA/AML program is specific to the institution and designed to mitigate money laundering risk...

Friday, 10 January 2014

Liquidity risk management

Written by Rehmann Team

Examiners continue to focus on a financial institution’s ability to demonstrate it is managing its liquidity risk. Regulators want to see that an institution has a plan in place to manage unplanned decreases in funding sources or changes in market conditions and the ability to liquidate assets quickly with minimal loss. In mid-2013, the Federal Reserve Board approved a final rule requiring banking organizations to hold higher quality capital that acts as a cushion to absorb losses and helps them maintain safety and soundness even during times of economic downturn or instability. The methodology for calculating risk-weighted assets to enhance risk sensitivity was improved, an important enhancement because banks and regulators use risk weighting to assign different levels of risk to different classes of assets; riskier assets require higher capital cushions and less risky assets require smaller capital cushions...

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