Bank Name

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Bank Name Logo

• Employee Compliance Orientation
• Revised 1/2005

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Bank Name Logo

• Welcome to Bank Name. As you get used to your
  new surroundings and try to absorb or remember
  everything youre given in your first few days,
  please take a moment to look over this material.
  It contains some very important and sometimes
  critical information that will help you do your
  job better, and avoid regulatory problems.
• Think of Bank Name as a business. Unlike a
  retailer who sells shoes, tires, or groceries,
  Bank Name doesnt offer goods for sale.
• What does Bank Name provide? In a word
  TRUST. Bank Name sells money, offers
  integrity, and is a for-profit business that
  depends on customer confidence and the quality
  delivery of its products and services.
• Thats where you come in. The way Bank Name
  operates says a lot about the way it prospers.
  Safe, sound, and prudent banking is not just the
  norm at Bank Name its the standard by which
  we operate, and by which we set our expectations.
  One of the underlying principles of this
  philosophy is that Bank Name is committed to the
  spirit and letter of the law and implementing
  regulations. It means complying with the most
  minute, tedious and technical detail as well as
  with the more substantive requirements and
  restrictions.
• Banking is one of the most highly regulated
  industries in the country, and often challenges
  us to remember the goals of our commitment to
  compliance. But if it means preserving the
  customers rights, preventing illegal acts such
  as discrimination or criminal activities, and
  supporting the integrity of the customer
  relationship, then compliance is more than just
  abiding by banking rules. It involves meeting
  our challenges with the delivery of superior
  products, with unsurpassed quality, customer
  service, and in a manner that maximizes
  shareholder value.
• Several elements of Banks Name Compliance
  Program are summarized in this training session.
  Please feel free to ask your supervisor about
  additional questions.

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Sit Back, Relax, Enjoy
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Training to Include

• Basic regulatory introduction
• Highlights from regulations that require annual
  training
• Internal policies to maintain regulatory
  compliance
• Overview of the internet based training program

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Whats in It for Me?

• Knowledge
• Is Power
• Is an Investment
• Can Lead to Advancement
• Builds Self-Confidence
• Stays with You

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Compliance Defined

• Fulfillment (n)
• Observance
• Conformity
• Disobedience (antonym)

• Obedience (n)
• Acquiescence
• Agreement
• Falling in line
• Submission
• Resistance (antonym)

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What Is Compliance?

• Compliance is
• Doing it right the first time
• Attempting to adhere to internal policies and
  procedures
• Maintaining a standard that is in accordance with
  the laws and regulations

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Lets Get Started
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Basic Regulatory Introduction

• Laws Regulations
• Much of what banks do on a daily basis is
  dictated by various laws and regulations imposed
  by federal and state authorities. These rules
  change with some regularity, and are in place for
  a variety of reasons consumer protection,
  fairness and equal treatment, law enforcement
  needs, or routine reporting of vital bank
  specific or industry related information.
• The following sections highlight a few of the
  compliance and community related issues that need
  to be understood in order to optimize your
  performance.

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Deposit Laws Regulations
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Basic Regulatory Introduction

• Deposit Regulations
• Regulation D Reserve Requirements
• Regulation D imposes uniform reserve
  requirements on all depository institutions with
  transaction accounts or non-personal time
  deposits defines deposits and requires reports
  of deposits. It also provides guidance on NOW
  account eligibility, MMDA and savings account
  transfer restrictions, and early withdrawal
  penalties.
• Regulation E Electronic Funds Transfers
• Regulation E establishes rights, liabilities,
  and responsibilities of parties in electronic
  funds transfers and protects consumers using EFT
  systems.
• Regulation J Check Collection and Funds
  Transfers
• Regulation J establishes procedures, duties, and
  responsibilities among Federal Reserve Banks and
  (1) the senders and payers of checks and other
  items, and (2) the senders and recipients of wire
  transfers of funds.

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Basic Regulatory Introduction

• Deposit Regulations (cont)
• Regulation Q Interest on Deposits
• Regulation Q provides guidelines and
  restrictions relating to interest on deposits and
  advertising.
• Regulation CC Funds Availability Collection
  of Checks
• Regulation CC implements the Expedited Funds
  Availability Act (EFA). Contains rules regarding
  the duty of banks to make funds deposited into
  accounts available for withdrawal, including
  availability schedules plus rules regarding
  exceptions to the schedules, disclosure of funds
  availability policies, payment of interest, and
  liability. Also contains rules to expedite the
  collection and return of checks by banks,
  including the direct return of checks, the manner
  in which the paying bank and returning banks must
  return checks to the depositary bank,
  notification of nonpayment by the paying bank,
  endorsement and presentment of checks, same-day
  settlement for certain checks, and other matters.
  

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Basic Regulatory Introduction

• Deposit Regulations (cont.)
• Regulation DD Truth in Savings
• Regulation DD requires banks to fully and
  accurately disclose the terms of deposit accounts
  to consumers and to be completely truthful in its
  disclosures, calculations, and advertising/promoti
  on to enable consumers to make informed decisions
  about deposit accounts at depository
  institutions.
• Federal Deposit Insurance
• FDIC regulations for deposit insurance contain
  complex rules on insurance coverage limitations
  based on amounts on deposit in a single financial
  institution, and the ownership structure of those
  accounts.

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Basic Regulatory IntroductionDeposit Regulations
(cont.)

• Check 21
• Check 21 was designed to foster innovation in the
  payments system and to enhance its efficiency by
  reducing some of the legal impediments to check
  truncation.
• Affects ALL institutions.
• Applies to money orders, controlled
  disbursements, and all government checks,
  including treasury checks and state warrants.
• Applies to ALL checks, with the exception of
  foreign checks.
• Check 21 will not affect the collection process
  (items sent for collection).
• Does not apply to Savings Bonds.

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Basic Regulatory IntroductionDeposit Regulations
(cont.)

• Check 21
• Check 21 creates a new legal concept called the
  substitute check. It allows banks to convert
  paper checks into digital images and then back
  into paper substitute checks. The images will
  travel through the clearing system
  electronically, greatly reducing the time and
  expense of check clearing.
• Banks, as well as their customers, are required
  to accept substitute checks.
• There is no opt-out for consumers and/or banks.
• While all types of customers may receive
  substitute checks, it is consumers who get the
  greatest protections.
• They are entitled to written disclosures that
  explain their rights.
• Their rights include expedited recredit if they
  incur a loss due to a substitute check and make a
  timely claim.
• A consumer is a natural person, someone like you.
  A consumer account is an account held by a
  natural person for personal, family or household
  use.
• Please ask your supervisor for further details on
  how Check 21 currently affects your specific job
  function.

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Lending Laws Regulations
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Basic Regulatory Introduction

• Lending Regulations
• Regulation M
• Regulation M implements the consumer leasing
  provisions of the Truth in lending Act.
• Regulation O Loans to Executive Officers of
  Member Banks
• Regulation O places restrictions on credit
  extended by a member bank to insiders which
  includes executive officers, directors, and
  principal shareholders and their related
  interests. Further, the regulation imposes
  reporting requirements relating to credit
  extended by a correspondent bank to a member
  banks executive officers and principal
  shareholders and their related interests.
• Regulation T
• Regulation T regulates extensions of credit by
  brokers and dealers. It imposes, among other
  obligations, initial margin requirements and
  payment rules on certain securities transactions.

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Basic Regulatory Introduction

• Lending Regulations (cont.)
• Regulation U
• Regulation U imposes credit restrictions upon
  persons other than brokers or dealers that extend
  credit for the purpose of buying or carrying
  margin stock if the credit is secured directly or
  indirectly by margin stock.
• Regulation Z Truth in Lending
• Regulation Z was designed to help consumers
  comparison shop for credit by requiring uniform
  methods of computing the cost of consumer credit,
  disclosure of credit terms, and procedures for
  resolving errors on certain credit accounts. The
  regulation gives consumers the right to cancel
  certain credit transactions that involve a lien
  on a consumers principal dwelling, regulates
  certain credit card practices, and provides a
  means for fair and timely resolution of credit
  billing disputes. The regulation requires a
  maximum interest rate to be stated in
  variable-rate contracts secured by the consumers
  dwelling. It also imposes limitations on certain
  home equity and mortgages.

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Basic Regulatory Introduction

• Lending Regulations (cont.)
• Flood Disaster Protection Act
• The Flood Disaster Protection Act establishes a
  process the federal and local governments to
  identify flood prone areas and provide flood
  hazard insurance for properties located in those
  areas. Lenders are required to determine, before
  making a loan, whether the property is located in
  a flood zone and notify the applicant of any need
  to purchase flood insurance. The lender also
  must ensure that flood insurance is maintained
  during the life of the loan.
• Lending Limits
• Limits are placed on the total amount that can
  be loaned to a single borrower. The act provides
  a formula for calculating the limit.

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Basic Regulatory Introduction

• Lending Regulations (cont)
• Real Estate Procedures Act (RESPA) -- HUDs Reg X
• RESPA sets forth rules and procedures for
  pertinent and timely disclosures pertaining to
  the real estate settlement process. It also
  protects against illegal kickbacks and abusive
  practices and places limits on loan servicing and
  the use of escrow accounts.
• Servicemembers Civil Relief Act (SCRA)
  --(amends/rewrites the Soldiers' and Sailors'
  Civil Relief Act of 1940)
• The purposes of this Act are-- (1) to provide
  for, strengthen, and expedite the national
  defense through protection extended by this Act
  to servicemembers of the United States to enable
  such persons to devote their entire energy to
  the defense needs of the Nation and
• (2) to provide for the temporary suspension of
  judicial and administrative p proceedings and
  transactions that may adversely affect the civil
  rights of servicemembers during their military
  service.

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Basic Regulatory IntroductionLending Regulations
(cont)

• Fair and Accurate Credit Transactions Act of 2003
  (FACT Act)
• The FACT Act was implemented to provide an
  extensive revision to the Fair Credit Reporting
  Act (FCRA).
• The primary purpose of the FCRA is to regulate
  the consumer reporting industry to ensure fair,
  timely, and accurate reporting of credit
  information.

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Basic Regulatory IntroductionLending Regulations
(cont)

• Fair and Accurate Credit Transactions Act of 2003
  (FACT Act)
• The seven key provisions of the FCRA address the
  following
• The nature and extent of information that
  consumer credit report may contain.
• The duties of financial institutions or other
  parties that furnish in formation to a consumer
  reporting agency (CRA).
• The duties of financial institutions other
  parties to provide notice of action taken to
  consumers in connection with the use of a
  consumer credit report.
• The procedures that a CRA must follow should a
  consumer dispute the accuracy of information in a
  consumer credit report.
• The activities that involve the use of consumer
  credit reports for credit or insurance
  transactions that are not initiated by a
  consumer.
• The exchange of information among affiliated
  institutions.
• The form of content of the summary of a
  consumers rights that a CRA must provide to a
  consumer when the CRA provides the consumer with
  information in the consumers credit file.

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Basic Regulatory IntroductionLending Regulations
(cont)

• Fair and Accurate Credit Transactions Act of 2003
  (FACT Act)
• The new preemptive provisions of the FACT Act
  cover the following
• Expanded obligations of financial institutions
  that furnish credit information to CRAs.
• Notification to consumers of reports of negative
  information.
• Risk-based credit pricing programs.
• Marketing solicitations that involve information
  from an affiliate.
• Prevention of identity theft.
• Other provisions, including the availability of
  free credit reports and disclosures of credit
  scores to consumers.s
• Reference the FACT Act Policy the Identity
  Theft Policy for additional information.
• Please check with your supervisor for further
  details on how the FACT Act may affect your
  current job function.

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Community Reinvestment Act (CRA)
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Basic Regulatory Introduction

• The Community Reinvestment Act (CRA)
• Each federal bank regulatory agency has issued
  regulations to implement the Community
  Reinvestment Act. Every commercial bank and
  thrift in the U.S. is expected to have policies
  and practices in place to assure that it is
  lending and investing in such a way as to help
  meet the credit needs of its local communities.
  Each institution will be examined periodically,
  and its performance measured against a series of
  test criteria. The examination will be
  determined by the size and type of institution.
• Regulation BB Community Reinvestment (CRA)
• Each federal bank regulatory agency has issued
  regulations to implement the Community
  Reinvestment Act and are designed to encourage
  banks to help meet credit needs of their
  communities.

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Equality
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Basic Regulatory Introduction

• Fair Lending and Equal Treatment
• The laws and regulations relating to fair
  lending provide a foundation for fair and equal
  treatment of ALL creditworthy applicants,
  regardless of various physical or ingenuous
  characteristics. There is no single regulation,
  rather a series of regulations and statues that
  comprise fair lending.
• Regulation B
• Regulation B prohibits creditor practices that
  discriminate on the basis of race, color,
  religion, national origin, sex, marital status,
  or age (provided the applicant has the capacity
  to contract) to the fact that all or part of the
  applicants income derives from a public
  assistance program or to the fact that the
  applicant has in good faith exercised any right
  under the Consumer Credit Protection Act. The
  regulation also requires creditors to notify
  applicants of action taken on their applications
  to report credit history in the names of both
  spouses on an account to retain records of
  credit applications to collect information about
  the applicants race and other personal
  characteristics in applications for certain
  dwelling-related loans and to provide applicants
  with copies of appraisal reports used in
  connection with credit transactions.

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Basic Regulatory Introduction

• Fair Lending and Equal Treatment (cont)
• Regulation C Home Mortgage Disclosure (HMDA)
• Regulation C requires certain mortgage lenders
  to disclose data regarding their home loan
  related lending patterns. The information is
  intended to provide the public with loan data
  that can be used to help determine whether
  financial institutions are serving the housing
  needs of their communities to assist public
  officials in distributing public-sector
  investments so as to attract private investment
  to areas where it is needed and to assist in
  identifying possible discriminatory lending
  patterns and enforcing anti-discrimination
  statues. The gathering of the information
  requires certain lenders to compete Loan
  Application Registers (LAR) to track home
  purchase loans, home improvement loans and
  refinancing.
• Regulation V
• Regulation V implements portions of the Fair
  Credit Reporting Act (FCRA). Includes model
  notices that can be used to notify customers
  either before or immediately following the
  delivery of negative information.

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Basic Regulatory Introduction

• Fair Lending and Equal Treatment (cont)
• Regulation AA Unfair Consumer Credit Practices
• Regulation AA establishes consumer complaint
  procedures and defines unfair or deceptive acts
  or practices of banks in connection with
  extensions of credit to consumers. Prohibits
  certain practices, such as taking a non-purchase
  money security interest in household goods.
• Americans with Disabilities Act (ADA)
• The ADA prohibits discrimination against
  individuals with disabilities and requires banks
  to take affirmative steps to ensure that
  individuals with disabilities have access to bank
  products and services, as well as to bank
  employment opportunities.
• Fair Credit Reporting Act (FCRA)
• FCRA establishes rules and procedures for
  obtaining and using information about a consumer.
  The law requires a bank to provide a notice if
  it denies credit because of information obtained
  in the applicants credit report.

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Basic Regulatory Introduction

• Fair Lending and Equal Treatment (cont)
• Fair Debt Collection Practices Act (FDCPA)
• FDCPA, passed to ban abusive practices by debt
  collectors. The law contains limitations on the
  time, frequency, and content of permissible
  communication with the debtor.
• Fair Housing Act
• The Fair Housing Act prohibits discrimination on
  the basis of race, color, religion, handicap,
  familial status, or national origin, in any
  aspect of a housing transaction, including sale,
  rental, and financing.

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Bank Secrecy Act
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Basic Regulatory Introduction

• Money Laundering and Anti-Money Laundering
• Bank Secrecy Act (BSA) and Anti-Money Laundering
  Program
• The existence of money laundering to advance the
  presence and profits of illicit activities has
  long been a concern in banking.
• In 1986, Congress created the Money Laundering
  Control Act, which strengthened the tools used by
  law enforcement, created the federal crimes of
  money laundering, and mandated that banks adopt a
  program of Bank Secrecy Compliance.
• In 1992, additional legislation prompted the
  expectation of an effective anti-money laundering
  component to these bank programs, as now
  reflected in the examination guidelines used by
  federal banking agencies.
• BSA also includes Know Your Customer which is
  the basis for recognizing and responding to the
  possibility of suspicious or suspected illegal
  activity.
• Along with the passage of the USA Patriot Act,
  BSA was expanded to include a Customer
  Identification Program (CIP) that is inclusive in
  the BSA Program.

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Security
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Basic Regulatory Introduction

• Bank Protection Act and Bank Security
• The banking industry has long been expected to
  maintain systems and procedures to protect
  against robberies, burglaries, and larcenies.
  This expectation has been expressed in statutory
  and regulatory terms.
• Regulation H (formally Regulation P) -- Bank
  Protection Act and Security Standards
• Regulation P sets minimum standards for a
  security program state-charted member banks must
  establish to discourage robberies, burglaries,
  and larcenies and to assist in identifying
  apprehending persons who commit such acts.

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Privacy Protecting Customer Information
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Basic Regulatory Introduction

• Customer Privacy
• Right To Financial Privacy
• The Right to Financial Privacy Act restricts the
  federal governments access to a bank customers
  financial records and activities.
• Note This is different than Regulation P
  Privacy of Consumer Financial Information created
  from the passage of the Gram Leach Bliley Act
  (GLBA).
• Regulation P Privacy of Consumer Financial
  Information
• Regulation P, Privacy, was created from the
  passage Graham-Leach-Bliley Act (GLBA). Privacy
  requires a financial institution to provide
  notice to customers about its privacy policies
  and practices describes the conditions under
  which a financial institution may disclose
  nonpublic personal information about consumers to
  nonaffiliated third parties and provides a
  method for consumers to prevent a financial
  institution from disclosing that information to
  most nonaffiliated third parties by "opting out"
  of that disclosure.

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Basic Regulatory Introduction

• Customer Privacy (cont)
• Safeguarding Customer Information
• The Interagency Guidelines Establishing
  Standards for Safeguarding Customer Information
  (Guidelines) set forth standards pursuant to
  sections 501 and 505 of the Gramm-Leach-Bliley
  Act (GLBA). The Guidelines apply to customer
  information maintained by or on behalf of state
  member banks and bank holding companies and their
  non-bank subsidiaries, except for brokers,
  dealers, persons providing insurance, investment
  companies, and investment advisors. These
  Guidelines also apply to customer information
  maintained by or on behalf of Edge corporations,
  and uninsured state-licensed branches or agencies
  of foreign banks.
• The Guidelines require each institution to
  implement a written information security program
  that includes administrative, technical, and
  physical safeguards appropriate to the size and
  complexity of the bank and the nature and scope
  of its activities. The program should be
  designed to ensure the security and
  confidentiality of customer information, protect
  against unanticipated threats or hazards to the
  security or integrity of such information, and
  protect against unauthorized access to or use of
  such information that could result in substantial
  harm or inconvenience to any customer. Each
  institution must assess risks to customer
  information and implement appropriate policies,
  procedures, training, and testing to manage and
  control these risks. Institutions must also
  report annually to the board of directors or a
  committee of the board of directors.

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OFAC the SDN List
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Basic Regulatory Introduction

• International Sanctions
• Office of Foreign Asset Control (OFAC)
• OFAC is the agency that administers and enforces
  the laws of the U.S. pertaining to international
  sanctions and related activities.

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BSA, CTRs, SARs
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Basic Regulatory Introduction

• Information Reporting Requirements
• Bank Secrecy Act (BSA)/Money Laundering/Large
  Currency Transaction Reporting
• BSA is a public purpose statute, which uses
  banks and other entities to report large currency
  transactions to the IRS to facilitate the
  identification and investigation of criminal
  money laundering activities.
• The act calls for the monitoring and recording
  of cash transactions in excess of 3,000 for the
  sale of monetary instruments or the aggregate
  cash transactions of 10,000 in any given day.
  Detailed information about customers conducting
  transactions exceeding 10,000 must be reported
  to the IRS on a Currency Transaction Report
  (CTR).
• The regulation also specifies the circumstances
  under which the deposits of certain customers may
  be exempted from the reporting requirement, and
  specifies what type of customer may never be
  exempted.

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Basic Regulatory Introduction

• Information Reporting Requirements (cont)
• IRS Information Reporting Lending and Deposits
  Backup Withholding Mortgage Interest Reporting
  Foreclosed/Abandoned Property Reporting
• Financial institutions are required to report
  certain information to the customer and to the
  IRS on an annual basis. Major reportable items
  include interest paid to the depositor, mortgage
  interest paid by the customer, and miscellaneous
  payments exceeding 600.
• The bank must obtain a tax ID number on a W-9,
  or a comparable certification, whenever an
  interest bearing account is opened or when a
  reportable transaction, such as cashing a savings
  bond, is processed. For certain taxpayers
  identified by the IRS, the bank must undertake
  backup withholding.

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Basic Regulatory Introduction

• Information Reporting Requirements (cont)
• Notice of Branch Closure
• Financial institutions must adopt policies on
  branch closings, and give advance notice to their
  regulator of intent to close a branch office.
  The advance notice should include a detailed
  analysis of the reasons for closing the branch.
• In addition, banks must mail a notice to the
  customers of the branch at least 90 days before
  closing, and post a notice in the branch at least
  30 days before closing.

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Additional Laws Regulations
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Basic Regulatory Introduction

• Various Laws Regulations
• Regulation A
• Regulation A relates to extensions of credit by
  Federal Reserve Banks to depository institutions
  and others. It establishes rules under which
  Federal Reserve Banks may extend credit to
  depository institutions and others.
• Regulation F
• Regulation F is designed to limit the risks
  that the failure of a depository institution
  would pose to other insured depository
  institutions. Provides requirements relating to
  interbank liabilities.
• Regulation G
• Regulation G provides disclosure and reporting
  of CRA-Related Agreements.

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Basic Regulatory Introduction

• Various Laws Regulations (cont)
• Regulation H
• Regulation H provides guidance on a variety of
  matters relating to state-chartered member banks,
  from real estate lending standards to standards
  for safety and soundness.
• Regulation I
• Regulation I implements the provisions of the
  Federal Reserve Act relating to the issuance and
  cancellation of Federal Reserve Bank stock upon
  becoming or ceasing to be a member bank, or upon
  changes in the capital and surplus of a member
  bank, of the Federal Reserve System.
• Regulation K
• Regulation K sets out rules governing the
  international and foreign activities of U.S.
  banking organizations, including procedures for
  establishing foreign branches and Edge
  corporations to engage in international banking
  and for investments in foreign organizations.

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Basic Regulatory Introduction

• Various Laws Regulations (cont)
• Regulation L
• Regulation L implements the Depository
  Institution Management Interlocks Act to foster
  competition by generally prohibiting a management
  official from serving two nonaffiliated
  depository organizations in situations where the
  management interlock likely would have an
  anticompetitive effect.
• Regulation N
• Regulation N governs relationships and
  transactions between Federal Reserve banks and
  foreign banks or bankers or groups of foreign
  banks, or bankers, or a foreign State.
• Regulation R
• Regulation R was repealed effective December 6,
  1996. It dealt with interlocking relationships
  between securities dealers and banks.

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Basic Regulatory Introduction

• Various Laws Regulations (cont)
• Regulation S
• Regulation S establishes the rates and
  conditions for reimbursement of reasonably
  necessary costs directly incurred by financial
  institutions in assembling or providing customer
  financial records to a government authority
  pursuant to the Right to Financial Privacy Act.
• Regulation W
• Regulation W implements Sections 23A and 23B of
  the Federal Reserve Act which govern most
  transactions between banks and their affiliates.
  The term banks includes all national banks, as
  well as insured state member and nonmember banks
  and, for certain purposes, US branches and
  agencies of foreign banks.
• Regulation Y
• Regulation Y regulates the acquisition of
  control of banks by companies and individuals
  defines and regulates the non-banking activities
  in which bank holding companies and foreign
  banking organizations with United States
  operations may engage and sets forth the
  procedures for securing approval for these
  transactions and activities.

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Basic Regulatory Introduction

• Various Laws Regulations (cont)
• Consumer Protections for Depository Institution
  Sales of Insurance
• The Gramm-Leach-Bliley Act (GLBA), Section 305,
  requires the Agencies jointly to prescribe and
  publish consumer protection regulations that
  apply to retail sales practices, solicitations,
  advertising, or offers of insurance products by
  depository institutions or persons engaged in
  these activities at an office of the institution
  or on behalf of the institution. It directs the
  Agencies to include specific provisions relating
  to sales practices, disclosures, and advertising,
  the physical separation of banking and
  non-banking activities, and domestic violence
  discrimination.

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Basic Regulatory Introduction

• State Laws
• Alabama Consumer Credit Act (Mini-Code)
• The apparent purpose of the Mini-Code was to
  provide Alabama with its first comprehensive
  consumer protection legislation. The Mini-Code
  regulated many aspects of consumer transactions
  including loans, credit sales and leases. It
  provided for a new system of interest rates for
  both open and closed-end loans. It provided many
  restrictions on lenders and credit sellers, and
  protective measures for consumer borrowers and
  purchasers. Rev. 1997
• Alabama Small Loan Act

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Basic Regulatory Introduction

• State Laws
• Uniform Commercial Code
• The UCC underlying purposes is to simplify,
  clarify, and modernize the law governing
  commercial transactions. And to make uniform the
  law among the various jurisdictions. Sections of
  the Code are as follows
• Article 1 General construction and Subject
  Matter
• Article 3 Negotiable Instruments
• Article 4 Bank Deposits and Collections
• Article 4A Funds Transfer
• Article 8 Investment Securities
• Article 9 Secured Transactions Sales of
  Accounts and Chattel Paper
• Article 15 Uniform Electronic Transactions Act

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More Changes
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Upcoming Changes

• New Upcoming Laws /or Regulations
• None thus far
• Potential Revisions to Laws /or Regulations
• Expedited Funds Availability Act (Regulation CC)
• Check 21 was effective October 28, 2004 but
  will continue to bring about new changes
• Fair and Accurate Credit Transactions Act of 2003
  (FACT Act) was effective December 1, 2004 but
  will continue to bring about new changes

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To Make Us Stronger Better
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Regulations that Require Annual Training

• Fair Lending and Equal Treatment
• The interagency examination council (FFIEC) has
  issued and subscribes to a general policy
  statement of what is expected of banks and other
  financial institutions relating to fair lending
  practices. Among these expectations are fair and
  equal treatment of all prospective customers and
  the avoidance of unequal or disparate treatment.
  Also called for are expectations of equal
  outcomes or results of lending practices and
  policies, including but not limited to
• Underwriting policies
• Targeted advertising and promotions
• Lender/underwriter hiring practices
• Guarding against even subtle forms of illegal
  discrimination, such as inadvertently
  discouraging applicants or developing products or
  services that may have the unintended effect of
  discriminating on an illegal basis.
• The laws and regulations pertaining to
  fairlending and equal treatment provide for
  technical as well as substantive compliance
  requirements. In some cases, even a technical
  omission may warrant mention in the CRA Public
  Evaluation report. If so, it will reflect a
  violation of fair lending laws, a distinction
  that no bank wants to receive.

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Regulations that Require Annual Training

• Fair Lending and Equal Treatment (cont)
• Laws associated with fair lending include
  Regulation BB the Community Reinvestment Act,
  Regulation B Equal Credit Opportunity Act,
  Regulation C - Home Mortgage Disclosure Act
  (HMDA), the Fair Housing Act, and the Americans
  with Disabilities Act (ADA).

57
BSA, KYC, CIP, FinCEN, OFAC, etc.
58
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• Introduction to Bank Secrecy and Money Laundering
  Deterrence
• The BSA Program should include four fundamental
  components
• Effective controls to ensure full compliance,
  including timely and accurate reporting and
  record keeping of information required by law.
• The Continuing support of adequate resources to
  achieve and ensure a satisfactory level of
  compliance. This extends to the appointment of a
  senior official to oversee the BSA compliance
  function, including the maintenance of the BSA
  program, vigilance as to money laundering
  dangers, and oversight over relevant
  policy/procedures issues.
• Training of appropriate personnel as to Bank
  Secrecy impact points and awareness of money
  laundering deterrence opportunities. The
  training curriculum is developed and implemented
  by bank management, and is sensitive to the
  demands of both compliance as well as
  risk-management. BSA training schedules are
  developed in concert with other bank training
  needs, and are focused on both the technical as
  well as substantive aspects of Bank Secrecy Act
  and Anti-Money Laundering efforts.
• Independent testing is periodically conducted of
  the banks BSA program and the integrity of its
  related systems and controls. This is performed
  by the banks internal auditors, and augments the
  independent review of currency transaction
  reporting and suspicious transaction activity
  performed continuously by compliance personnel.

59
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• Money Laundering/Anti-Money Laundering Detection
  and Prevention Programs
• Money is laundered in order to conceal
  criminal activity associated with it, and/or to
  finance terrorist activity. It is generally
  driven by criminal activities and enterprises.
  Money Laundering is the act of converting dirty
  money into clean money. Anti-Money Laundering is
  the act of converting clean money into dirty
  deeds.
• Banks are considered to be the key to deterring
  this type of criminal activity, since access to
  the financial system generally starts with a bank
  transaction. As such, banks are expected to
  recognize this responsibility and to develop
  practices to identify and respond to possible
  money laundering and/or anti-money laundering
  activities. The process usually breaks down into
  three general areas or processes
• Placement
• Layering
• Integration.

60
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• What is Money Laundering?
• Money Laundering is the converting of money
  gained from Dirty Deeds into Clean Money.
  The motivation is Greed.
• Dirty Deeds
• Placement of funds Money is placed into the
  Banking System through deposits, wire transfers,
  or other means, unlawful proceeds into
  traditional financial institutions.
• Layering Funds are moved from account to
  account, country to country, and/or bank to bank.
  It is separating the proceeds of criminal
  activity from their origin through the use of
  layers of complex financial transactions such as
  converting cash into travelers checks, money
  orders, letters of credit, stocks and bonds, or
  purchasing valuable assets such as art or
  jewelry.
• Integration The money is placed into the
  economy. Items are bought to sell for profit,
  such as real estate or commercial business. It
  is using an apparently legitimate transaction to
  disguise the illicit proceeds allowing the
  laundered funds to be disbursed back to the
  criminal. Different types of financial
  transactions such as sham loans or false
  import/export invoices are used.
• Clean Money

61
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• What is Anti-Money Laundering
• Anti-Money Laundering is the use of legitimate
  funds for illegal activities such as
• Terrorism. Charities represent all that is good
  about mankind helping others in need. However,
  for the terrorist, charities are a perfect cover
  for collecting money for terrorist acts. It is
  the usage of Clean Money for Dirty Deed. The
  motivation is Destruction.
• Clean Money
• Integration The money is placed into the
  banking system.
• Layering Funds are moved into the economy
  through purchase and/or donation.
• Placement Money (donation or purchase) is
  placed into other groups (Terrorists).
• Dirty Deeds
• Note Employees should request IRS Form 990 for
  any organizational account either preexisting or
  newly established. This form serves as
  verification threat the organization has
  registered appropriately with the government.

62
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• The first 2 elements, Placement and Layering
  represent high risk to the conductor of the
  transactions ( the likelihood of detection by a
  bank or law enforcement official). The
  likelihood of tracing the funds back to the true
  owner is relatively good.
• The last element, Integration however, is
  relatively risk-free. Once placed in the
  financial system, access to the funds would be
  relatively free from scrutiny and would be
  unencumbered by probing questions from bankers
  and law enforcement. The vigilance of bankers at
  the initiation of these transactions (opening
  accounts, depositing funds, instructing funds to
  be wired, engaging in loan or letter of credit
  activity) is critical to detecting and preventing
  the bank from being used to access the financial
  system.

63
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• Role of Bank Employees
• As bankers, it is fully expected that all bank
  officers, directors, and employees be aware of
  and abide by the spirit and letter of the law.
  This demands constant vigilance for evidence of
  possible money laundering behavior or transaction
  activity.
• It extends to being familiar with bank
  procedures, controls, and best practices to
  assist in this vigilance, as well as being
  prepared to respond to unusual activity in a
  manner as called for by bank policy.
• The bank provides regular training opportunities
  for all employees affected by BSA and Anti-Money
  Laundering laws and regulations. This training
  extends to every employee of affected departments
  or functions, and covers the various reporting
  and record-keeping rules, updates, recent cases
  or schemes, and any related changes to policy,
  procedures, controls, or practices. Training is
  offered through various resources, including but
  not limited to, web-based sessions, internal
  meetings, and internet based courses. It is
  expected that all appropriate personnel attend
  all such sessions, and that periodic testing or
  reviews will be conducted.

64
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• Bank Secrecy Training
• Frontier Bank provides regular training
  opportunities, internally and through the
  Internet Based Training Program, for all
  employees affected by the Bank Secrecy Act and
  Anti-Money Laundering laws and regulations. This
  training extends to every employee of affected
  departments or functions, and covers the various
  reporting and record-keeping rules, updates,
  recent cases or schemes, and any related changes
  to policy, procedures, controls, or practices.
  It is expected that all appropriate personnel
  participate in training as applicable.
• In addition to the employee training, all
  employees are encouraged to review and consider
  the issues discussed in the Bank Secrecy
  Act/Anti-Money Laundering Policy/Procedures,
  Office of Foreign Asset Control
  Policy/Procedures, and the Customer
  Identification Policy/Procedures. A thorough
  understanding of the Banks procedures and
  practices are necessary to ensure an effective
  Bank Secrecy posture and to minimize the risks of
  unnecessary exposure.

65
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• Internal Controls and Systems
• Frontier bank uses an extensive set of automated
  reporting and identifying mechanisms to help
  capture and analyze data relevant to the
  monitoring of large currency transactions. Other
  management reports are utilized to monitor for
  structuring, kiting, money laundering, or other
  such financial crimes. These are also used to
  test the accuracy and integrity of the data and
  system of internal controls.
• These systems and reports, however, represent
  only to enhance the primary line of defense the
  vigilance of our employees. Firsthand knowledge
  and customer contact are the best ways to assure
  that the Bank has not been used as a conduit for
  illegal activity. By observing multiple
  transactions, multiple account openings, or a
  combination of seemingly unrelated transactions
  or behaviors, the employee is usually in the best
  position to ask about the nature of the activity,
  and to determine whether it is reasonable and
  commensurate with the nature of the customers
  business.

66
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• Designated BSA Officer
• Frontier Bank has established a Regulatory
  Compliance function to oversee and coordinate the
  various aspects of the Banks compliance program.
  The Banks Compliance Officer is also appointed
  by the Board of Directors as BSA Officer. By
  regulation, the BSA Officer is a senior official
  of the Bank and is in a position to influence
  bank policy. The BSA Officer regularly reports
  to management and the Board, as well s to the
  appropriate standing committees for Compliance
  and BSA matters. Although employees are
  encouraged to bring suspicious activity or
  general questions to the attention of their
  immediate supervisor, each employee has direct
  access to the BSA Officer should the need arise.
  The responsibility for overseeing the BSA Program
  is that of the BSA Officer, but the direct and
  ultimate responsibility for full compliance with
  the regulations and bank policy is that of each
  employee.

67
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• Independent Testing
• To preserve the integrity of the process and of
  the components of the BSA Program, and audit
  should be performed at least annually by the
  Banks Internal Auditor. This involves testing
  various transactions, the adequacy of internal
  controls and management reports, and reviews of
  bank practices against established (and
  Board-approved) policy, protocol, and procedures.
  Recommendations may be warranted depending on
  the findings and the severity of the exposure to
  risk.

68
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• What is Expected of Banks and Bankers
• In addition to the program elements required by
  law, banks are expected to develop and maintain a
  strong commitment to its bank Secrecy and
  Anti-Money Laundering efforts. This includes
  adopting policies and practices to know its
  customer, refusing to do business with those
  customers who are reluctant to provide
  information about their business, and diligently
  responding to possible indications of suspicious
  or suspected criminal activity. Regulators
  encourage all banks to adopt policies and
  procedures consistent with the regulatory
  principles. Among others, these principles
  include knowing the customer, identity
  verification, cooperating with law enforcement,
  ascribing to the highest ethical standards, and
  communicating an awareness of related
  developments to its employees.

69
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• Suspicious Activity Reporting
• In accordance with regulations calling for
  mandatory reporting of suspicious or suspected
  criminal activity, employees should report all
  suspicious activity or transactions in a series
  of financial activities to their supervisor
  immediately. This information is then reported
  to the Compliance and/or Security Officer, who in
  turn will investigate or research the allegation.
  If appropriate, the BSA Officer will file a
  Suspicious Activity Report (SAR), and maintain
  records as appropriate. Under no circumstance
  may any employee ever notify any subject of a SAR
  (even a suspected SAR) as to the existence of a
  suspicious activity report or internal
  maintenance of a file relating to a SAR.
• Information Reporting, Record-keeping and
  Retrieval
• A bank has an obligation to maintain systems
  which are capable of fulfilling the requirements
  of BSA and related regulations. Both manual and
  automated means can be used to capture and
  report, as well as maintain and retrieve records
  of this information as required by law. BSA and
  related regulations have specific retention
  requirements for maintaining specific documents.

70
Know Your Customer
71
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• Know Your Customer
• The basis for recognizing and responding to the
  possibility of suspicious or suspected illegal
  activity is in knowing the customer. This
  extends to knowing the types of business the
  customer is in, the nature of the expected
  financial transactions, patterns to the account
  relationship, and when the tradition relationship
  has taken a new turn. Without invading anyones
  right to financial privacy, the Bank expects that
  all employees be aware of and generally familiar
  with the behaviors and patterns of customers
  routine activity, for the protection of the
  customer as well as the Bank.
• Knowing the customer extends beyond the opening
  account stage, and usually involves an
  appreciation for what type of account
  relationship to expect. This helps to provide
  appropriate levels of customer service,
  anticipate the customers need, and ensure the
  delivery of high quality customer service.
• Every employee should be familiar with his or
  her responsibilities in connection with KYC.

72
Customer Identification Program (CIP)
73
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• Customer Identification Program (CIP)
• The purpose of the USA PATRIOT Act is to enhance
  the Countrys ability to protect and defend
  itself against threats of international
  terrorism.
• Section 326 of the Act and accompanying
  implementing regulations require banks to
  establish and maintain a written Customer
  Identification Program (CIP) as a part of the
  Bank Secrecy Act (BSA) Program. The CIP must
• Enable the Bank to form a reasonable belief that
  it knows the true identity of its customers.
• Be based upon relevant risks, including the
  Banks
• Size
• Location
• Type of business or customer base
• Type of accounts offered
• Various methods used to open accounts
• Type of identifying information available to
  the Bank

74
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• Policies and Procedures
• Policies and Procedures for compliance with
  Section 326 of the USA Patriot Act and CIP are to
  include
• Establish identity verification methods for any
  person seeking to open an account
• Establish record retention for information used
  to verify an individuals identity, including
  name, address and other identification
• Establish procedures for determining if a
  customer appears on any government lists
• Written or oral customer disclosure notice
  requirement

75
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• CIP Applicability
• The CIP should be applied to the following
  individuals/entities
• All persons (including individuals, corporations,
  partnerships, associations, trusts, estates,
  organizations and all other entities cognizable
  as legal personalities) that open a new account
• Any individual who opens a new account for
• A person who lacks legal capacity, such as a
  minor
• Any entity that is not a legal person, such as a
  civic club
• The CIP is not applicable to the following
• Financial institutions regulated by a Federal
  functional regulator or a bank regulated by a
  state bank regulator
• Governmental agencies, instrumentalities and
  publicly traded companies
• Any existing FB customer seeking to establish a
  new account provided there is reasonable belief
  that identity of the person is know.

76
Regulations that Require Annual Training

• Bank Secrecy Act and Anti-Money Laundering
  Program (BSA)
• CIP Procedures
• CIP procedures should include
• A system of internal policies, procedures, and
  controls for verification of the identity of each
  customer to the extent reasonable and practicable
  under the circumstances of the banks operations.
• Designation of a BSA Officer and/or Assistant BSA
  Officer responsible for overseeing compliance
  with the CIP.
• Ongoing employee training program that includes
  CIP.
• An independent audit function to test the CIP
  Program.
• Notice to Customers
• In addition to the CIP, Section 326 of the USA
  Patriot Act requires that notice be available to
  consumers informing them of their duty to comply
  with the new identification procedures. The
  notice may be made available to consumers by
• A lobby poster or any other form of written or
  oral notice
• An electronic notice for account openings that do
  not occur face-to-face, such as over the Internet

77
OFAC Penalties
78
Regulations that Require Annual Training

• Office of Foreign Asset Control (OFAC)
• The U.S. engages in practices that occasionally
  require that it protect the interests of its
  citizens and related national interests. The
  U.S. uses economic sanctions to further its
  interests or comply with the resolutions of the
  United Nations. These sanctions include trade
  embargoes, control over blocked assets, and other
  commercial and financial restrictions. In
  addition, there are listings of suspected
  terrorists, narco-terrorists, and
  specially-designated national (SDN) that
  require banks to monitor regularly.
• OFAC is the agency of the U.S. that oversees and
  administers the series of laws and regulations
  that impose these economic sanctions. OFAC is
  responsible for putting together, developing, and
  administering the sanctions, and banking
  regulatory and supervisory agencies are
  responsible for ensuring bank compliance with the
  various regulations.
• For this reason, most banks have developed a
  program for monitoring and responding to OFAC
  responsibilities, and for maintaining systems and
  records to demonstrate its compliance efforts.
  What is required is that banks identify any
  person or property listed by OFAC in connection
  with one of the U.S. sanctions laws.

79
Regulations that Require Annual Training

• Office of Foreign Asset Control (OFAC) (cont)
• Any transaction involving such a match must be
  viewed to determine whether the transaction/fund
  transfer must be blocked or rejected. Failure to
  do so could subject the bank to significant
  monetary and criminal fines and penalties.
• The bank uses an automated system to identify
  possible customer or property that matches those
  maintained on the lists provided by OFAC. The
  system is downloaded regularly from the OFAC
  listings, and filters are used to scan for
  matches. OFAC is contacted with any possible
  matches, and procedures are established to comply
  with appropriate actions.
• Employees should contact the Compliance
  Department for approval before continuing with
  any type of transaction if an OFAC hit arises
  while performing the transaction. Customers are
  not to be informed unless instructed otherwise by
  the Compliance Department.
• All employees should be familiar with the OFAC
  SDN List located on the OFAC website at
  www.ofac.gov for situations when the computer
  system is down.

80
Security Manual
81
Regulations that Require Annual Training

• Bank Protection Act and Bank Security
• Regulation H Regulation P FDIC Part 326
• The banking industry has long been expected to
  maintain systems and procedures to protect
  against robberies, burglaries, and larcenies.
  This expectation has been expressed in statutory
  and regulatory terms, calling for a formal
  program of bank security along with the
  appointment of an officer or senior official to
  oversee this program.
• For many years, the regulations imposed a strict
  set of minimum standards, calling for very
  specific criteria, such as vault thickness,
  steel-plated reinforcement, cameras and lighting.
  This was eventually changed to require that
  banks adopt appropriate security procedures to
  discourage robberies, burglaries, and larcenies
  and to assist in identifying apprehending persons
  who commit such acts.
• Todays bank security program takes into account
  a variety of risks to the bank, extending beyond
  the traditional robberies, burglaries, and
  larcenies. Risks from physical as well as
  information-security threats are equally
  important in todays security program. Risks
  from check fraud, kiting, money laundering and
  similar white collar crimes are equally
  threatening. Threats from within as well as
  outside are of concern.

82
Regulations that Require Annual Training

• Bank Protection Act and Bank Security
• Regulation H Regulation P FDIC Part 326
• Regulation P FDIC Part 326 sets minimum
  standards for a security program state-chartered
  member banks must establish to discourage
  robberies, burglaries, and larcenies and to
  assist in identifying apprehending persons who
  commit such acts.
• A bank must appoint a Security Officer to
  develop and administer a Security Program, which
  must be in writing and approved and ratified
  annually by the banks board of directors. The
  Program must include procedures for the
  following
• Opening closing
• Safekeeping cash and other valuables
• Identify possible criminals
• Preserve evidence (cameras, dye-packs)
• Employee training
• Periodic testing of security devices, including
  lighting, locks, and alarms.

83
Protecting Customers Information
84
Regulations that Require Annual Training

• Safeguarding Customer Information
• In response to consumer concerns about the
  security and privacy of financial information
  during a time when electronic banking was growing
  rapidly, Congress enacted the Gramm-Leach-Bliley
  Act in November of 1999. In part, this law
  required that financial institutions must ensure
  the security and confidentiality of customer
  records, and information, protect against any
  anticipated threats or hazards to the security or
  integrity of such records, and protect against
  unauthorized access to or use of such records or
  information that would result in substantial harm
  or inconvenience to any customer. The law also
  required that bank regulators establish standards
  for depository institutions to develop systems
  and controls to implement the requirements of the
  law. The agencies issued guidelines in February
  of 2001.
• The guidelines require a written security
  program with internal controls, monitoring, and
  reporting to the board of directors. July 1,
  2002 was the mandatory compliance date.

85
Regulations that Require Annual Training

• Safeguarding Customer Informa