Tennessee Bank Faces FDIC Action
The Federal Deposit Insurance Corporation (FDIC) has taken action against Brighton Bank, a community bank located 30 miles north of Memphis, Tennessee. The bank has entered into an agreement with the FDIC to address violations of compliance laws, specifically related to the Bank Secrecy Act (BSA).
FDIC Consent Order and Remedial Actions
The consent order, which was made public on Friday, outlines the actions that Brighton Bank must take to remedy its violations. These actions include appointing a BSA officer, enhancing audits of information technology, and providing staff training on BSA/AML requirements.
One of the key points highlighted in the consent order is the need for stronger information technology controls for the bank’s compliance and cybersecurity. Brighton Bank has been required to overhaul its anti-money laundering technology and practices to meet the FDIC’s expectations.
Importance of IT Function in Compliance
According to Michael Dawson, a partner at law firm WilmerHale, the consent order reflects the increasing scrutiny of AML compliance programs by federal banking agencies. He emphasized that an effective BSA/AML function requires strong IT functions. Without robust IT systems, it is challenging to have effective compliance measures.
Dawson also noted that federal regulators reserve public enforcement actions for banks with systemic issues rather than isolated incidents of violations. In Brighton Bank’s case, the consent order aims to improve their practices related to BSA/AML, including establishing a designated team, implementing independent testing, providing employee training, and enhancing internal controls.
The Role of Technology Controls in Wires
The consent order specifically addresses Brighton Bank’s wire system, such as wire limits, verification processes, and wire insurance. Dana Twomey, an expert in risk and compliance consulting for financial institutions, emphasized the importance of leveraging technology controls and process controls to ensure appropriate review of wires before their transmission.
FDIC’s Concerns and Remediation Program
The FDIC initially expressed concerns about Brighton Bank’s BSA/AML violations in a report in August 2022. Subsequently, the bank launched a new website and updated its mobile app earlier this year, aiming to enhance security and provide a user-friendly experience. Shelby Knipple was appointed as the BSA officer for Brighton Bank.
Remediating compliance programs in response to a consent order is a challenging task for banks. Brighton Bank, like others in a similar situation, must improve internal controls and processes while continuing regular banking operations. The FDIC expects a high level of board supervision during this period, especially when institutions undergo significant changes in strategy and management.
Importance of Investing in Compliance Technology
According to industry observations, banks are not investing heavily in compliance technology compared to other areas. Twomey stated that outdated or insufficient technology puts banks at a disadvantage for compliance purposes and advised them to evaluate their systems more rigorously in the future.
IT systems play a crucial role in how BSA functions within financial institutions. Given the current regulatory scrutiny, it is unsurprising that regulators are focusing on technology’s role in ensuring compliance.
Frequently Asked Questions (FAQs)
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What is the FDIC?
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that provides deposit insurance to depositors in banks and savings associations. It ensures the stability and public confidence in the nation’s financial system. -
What is the Bank Secrecy Act (BSA)?
The Bank Secrecy Act (BSA) is a federal law that requires financial institutions to assist government agencies in detecting and preventing money laundering. It imposes various requirements on banks, including reporting large currency transactions and suspicious activities. -
What is AML compliance?
Anti-Money Laundering (AML) compliance refers to the measures and regulations put in place by financial institutions to detect and prevent money laundering activities. It involves implementing policies, procedures, and controls to identify and report suspicious transactions. -
Why is IT function important in compliance?
Information technology (IT) plays a crucial role in establishing and maintaining effective compliance programs. IT systems help in monitoring and analyzing financial transactions, identifying potential risk patterns, and ensuring the security of sensitive customer data. -
What actions are Brighton Bank required to take?
Brighton Bank must appoint a BSA officer, enhance IT audits, and provide staff training on BSA/AML requirements, among other action items. The bank is also required to improve practices related to BSA/AML, wire systems, and internal controls.
Conclusion
The FDIC’s action against Brighton Bank highlights the importance of technology compliance in the banking industry. Financial institutions must prioritize their IT functions to ensure effective BSA/AML programs and cybersecurity controls. Banks should invest in modern technology to meet regulatory expectations and prevent violations. Brighton Bank’s consent order serves as a reminder for all banks to prioritize compliance and leverage technology to enhance their systems and processes.
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