FDIC Takes Action Against Brighton Bank in Tennessee
The Federal Deposit Insurance Corporation (FDIC) and Brighton Bank
Brighton Bank, a community bank located just north of Memphis, Tennessee, has recently entered into an agreement with the Federal Deposit Insurance Corporation (FDIC) to overhaul its anti-money laundering (AML) technology and practices. This action comes after a report from the FDIC last year revealed that the bank had violated compliance laws related to the Bank Secrecy Act (BSA). The consent order, which was made public on Friday, outlines a series of actions that Brighton Bank must take to address these violations.
A Broad Set of Actions to Remedy Compliance Violations
The consent order, which took effect on November 30th, requires Brighton Bank to undertake several steps to rectify its compliance violations. Some of these actions include appointing a BSA officer, enhancing audits of information technology, and providing BSA/AML training to staff members. The order also emphasizes the need for stronger information technology controls, both for compliance and cybersecurity purposes.
The Importance of IT in AML Compliance
Michael Dawson, a partner at law firm WilmerHale, highlights the increasing demand for BSA/AML advice from clients. He emphasizes that the consent order reflects the close scrutiny from federal banking agencies regarding AML compliance programs. Additionally, he stresses the importance of a strong IT function to support effective BSA/AML functions. Dawson explains that it is not possible to have an efficient BSA/AML program without a robust IT infrastructure.
Improving BSA/AML Practices
Under the consent order, Brighton Bank is required to enhance its practices related to BSA/AML. This involves establishing a designated BSA/AML team, conducting independent testing, providing employee training, and implementing internal controls. The order specifically addresses the bank’s wire system, requiring improvements in wire limits, verification processes, and wire insurance.
Dana Twomey, a risk and compliance consulting leader at West Monroe, emphasizes the importance of leveraging technology and process controls to ensure wires are appropriately reviewed before being sent. Twomey suggests that banks should consider updating their systems and investing in compliance technology to maintain a competitive advantage in the evolving regulatory landscape.
FDIC’s Concerns and Brighton Bank’s Response
The FDIC initially expressed its concerns about Brighton Bank’s BSA/AML violations in a report issued in August 2022. In response, the bank launched a new website and updated its mobile app earlier this year. The redesigned site offers educational blogs about cybersecurity and claims to be more user-friendly, efficient, and secure. Brighton Bank also appointed Shelby Knipple as its BSA officer.
Challenges in Remediating Compliance Programs
Remediating compliance programs in response to a consent order presents challenges for banks, according to Dawson. Banks need to improve internal controls and processes while continuing to operate effectively. Dawson likens this challenge to “fixing the airplane while flying it,” underscoring the resource allocation difficulties involved. He also highlights the high level of board supervision expected by the FDIC for Brighton Bank, suggesting that regulators rely on close board involvement during periods of significant change.
The Importance of Investment in Compliance
According to Twomey, industry trends indicate that banks are not investing as heavily in compliance technology as in other areas. She emphasizes that outdated or inadequate technology puts banks at a disadvantage for compliance purposes. Twomey suggests that banks should closely evaluate their systems and consider making necessary improvements to meet regulatory scrutiny.
Frequently Asked Questions (FAQs)
- What is the FDIC’s role in overseeing banking compliance?
The FDIC is responsible for regulating and supervising financial institutions to ensure they adhere to compliance requirements, including those related to anti-money laundering. - Why did Brighton Bank receive a consent order from the FDIC?
Brighton Bank violated compliance laws related to the Bank Secrecy Act (BSA), prompting the FDIC to take action and issue a consent order demanding changes. - What actions does Brighton Bank need to take to address its compliance violations?
Brighton Bank is required to appoint a BSA officer, enhance IT audits, provide BSA/AML training to its staff, and strengthen information technology controls, among other actions outlined in the consent order. - Why is IT important in AML compliance?
An effective IT function is crucial for supporting BSA/AML functions within a financial institution. It allows for better control and monitoring of transactions, ensuring compliance with anti-money laundering regulations. - What challenges do banks face when remediating compliance programs?
Remediating compliance programs while continuing normal banking operations presents resource allocation challenges. Banks must simultaneously improve internal controls and processes while running the bank smoothly.
Conclusion
The FDIC’s consent order against Brighton Bank emphasizes the importance of strong anti-money laundering technology and practices. It urges the bank to enhance its compliance programs, specifically by strengthening its IT functions. Brighton Bank is expected to implement a range of improvements, including the appointment of a BSA officer, improved audits, staff training, and internal controls. This action highlights the increasing scrutiny and expectations from federal banking agencies regarding AML compliance. Moving forward, it is essential for banks to invest in compliance technology to meet the evolving regulatory landscape and ensure the integrity of their operations.
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