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Compliance Part 1: Exam Processes, Report Prep, and CMS_COLOMBO > Enforcement Actions_AC > Flashcards

Enforcement Actions_AC Flashcards

1
Q

I. Compliance Manual II-9.1 Enforcement Actions

A

N/A

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2
Q

When can the FDIC initiate a formal or informal enforcement action?

A

When a bank is found to be in an unsatisfactory condition.

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3
Q

What law or regulation governs FDIC formal enforcement actions?

A

The Federal Deposit Insurance Act (FDI)

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4
Q

What is the final supervisory step before initiating a formal enforcement action?

A

informal EA

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5
Q

T or F:

When considering an enforcement action, the consultation policy should be followed.

A

TRUE

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6
Q

What is an informal enforcement action?

A

Voluntary commitments made by the Board of Directors/trustees of a bank designed to correct identified deficiencies and ensure compliance with federal and state banking laws and regulations.

Informal actions are neither publicly disclosed nor legally enforceable.

FIEP: Informal actions are voluntary commitments made by an IDI’s BOD or an IAP. Informal actions are not legally enforceable and are not publicly disclosed or published.

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7
Q

What are the most common types of informal enforcement actions (2)?

A

Board Bank resolutions (BBR)

Memorandum of Understanding

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8
Q

What is a BBR?

A

Informal commitment developed and adopted by the Board of the bank, at the request of Regional Management, directing bank’s personnel to to take corrective action on deficiencies.

May be drafted by a bank Board as a proactive measure.

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9
Q

What is an MOU?

A

Informal agreement between a bank and the FDIC that is drafted by the Regional Office staff to address and correct identified weaknesses in an institution’s compliance or CRA posture.

Generally used in place of a Board Resolution when the FDIC has reason to believe that a Board Resolution would not adequately address the deficiencies noted during the examination.

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10
Q

What is a formal enforcement action?

A

Actions taken pursuant to the powers granted to the FDIC’s Board of Directors under Section 8 of the FDI Act.

Formal enforcement actions are publicly available records.

FIAEP: Formal actions are notices or orders issued by the FDIC against IDIs or IAPs. Formal actions are legally enforceable. Most notices and final orders are published after issuance, as required by law.

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11
Q

What are the formal enforcement actions used in connection with compliance matters?

A

Termination of insurance
Cease & Desist Order
Order for Restitution
Temporary Cease & Desist Order
Removal and Prohibition Order
Temporary Suspension Order
Suspension Order
Civil Money Penalties

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12
Q

What is a Cease & Desist Order?

A

Issued to halt violations of laws or regulations and require affirmative action to correct any condition resulting from such violations.

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13
Q

T or F:

By ordering an institution or an institution affiliated party (IAP) to cease and desist from practices and/or take affirmative actions, the FDIC may prevent the problems facing the institution from reaching such serious proportions as to require more severe enforcement actions.

IAP examples= individual officer or director of an institution

A

TRUE

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14
Q

If the bank voluntarily agrees to the entry of a “Cease and Desist order” what is it called?

A

Consent Order

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15
Q

Who can receive a Cease and Desist Order?

A

Institution affiliated party (IAP), bank, bank officer/director.

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16
Q

What is an Order for Restituion?

A

Requires a bank or IAP to disgorge any unjust enrichment to consumers or take other actions to stop consumer harm.

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17
Q

What is a Temporary Cease & Desist Order?

A

Issued in the most severe situations to halt particularly egregious practices pending a formal hearing on permanent Cease-and-Desist Orders issued pursuant to Section 8(b).

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18
Q

What is a Removal and Prohibition Order?

A

To order the removal of an IAP for an insured depository institution.

The prohibition may be for specific activities or may be industry-wide.

IAP examples: director, officer, employee, controlling stockholder other than a bank holding company, or agent

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19
Q

What is a Temporary Suspension Order?

A

The temporary suspension of an IAP pending a hearing on an Order of Removal, if the IAPs continued participation poses an immediate threat to the bank or depositors

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20
Q

What is a Suspension Order?

A

Issued to IAPs who are charged with felonies involving dishonesty or a breach of trust pending the disposition of the criminal charges.

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21
Q

What are Civil Money Penalties (CMPs)?

A

CMPs are assessed to sanction a bank, IAP, or individual for violation, breach of fiduciary duty, and/or practice. Also to deter future occurrences.

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22
Q

What is considered for CMPs assessed to a bank or IAPs?

A

12 factors that measure the breadth and severity of the problem are considered, including consumer harm, cooperation, and supervisory history. Additionally, the asset size of the institution is taken into account.

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23
Q

T or F: In the case of a CMP assessed to an individual, a similar analysis is performed.

A

TRUE

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24
Q

T or F:

The FDIC utilizes separate CMP matrices for institutions and individuals. In both cases, the CMP matrices are guidance intended to promote consistency in the assessment of CMPs.

A

TRUE

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25
Q

II. Formal and Informal Enforcement Action Manual

A

N/A

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26
Q

What is actionable conduct (4)?

A
  • an action that results in any violation, cease & desist order, and other condition in writing imposed by FDIC, or any written agreement between a bank and FDIC
  • any participation, counseling, aiding or abetting in a violation

-any engagement in unsafe or unsound practice

  • any breach of fiduciary duty
27
Q

What is an Institution-Affiliated Party (IAP) (4)?

A
  • Any director, officer, employee, controlling shareholder for a bank (other than a bank holding company or savings and loan holding company)

-anyone required to file change-in-control notice

-shareholder, consultant, joint venture partner, etc. who participates in conduct of the bank

  • Any independent contractor who knowingly or recklessly participates in violations, breaches of fiduciary duty, or unsafe or unsound practices
28
Q

What is the statute of limitations on formal enforcement actions?

A

5 years (generally)

29
Q

What is a Supervisory Letter?

A

Correspondence sent by the FDIC to an IAP or bank to communicate a supervisory concern or to admonish (advise) a bank or IAP without seeking a formal enforcement action.

Ex: the instructions for the CMP matrix against individuals suggests that the FDIC consider sending a supervisory letter when the resulting matrix score does not suggest that a CMP be considered.

30
Q

What compliance ratings typically result in an EA?

A

3, 4, or 5. However, EAs can be issued with higher rated banks if the circumstances permit.

31
Q

When should an informal EA be pursued?

A

Generally appropriate for 3 rated banks

This rating indicates the institution has weaknesses that, if left uncorrected, could cause the institution’s condition to deteriorate.

32
Q

T or F:

When formal action is considered but ultimately not pursued (e.g., when a CMP matrix score suggests no CMP be assessed) sending a supervisory letter to an IDI or IAP is an alternative action that may be considered

A

TRUE

33
Q

When should a formal EA be pursued?

A

Bank with 4 or 5 rating, evidence of unsafe or unsound practices, concern over high volume or severity of violations.

With higher ratings (3)- when certain actions such as CMPs/restitution are taken based on actionable misconduct

34
Q

What must be done to modify a formal EA?

A

Issue a modification order

35
Q

When would the FDIC be required to REFER a matter to the Department of Justice (DOJ)?

When would the FDIC be required to NOTIFY HUD of a fair lending matter?

A

REFER= Whenever the FDIC has reason to believe that an institution has engaged in a pattern or practice of discouraging or denying applications for credit in violation of ECOA,

NOTIFY= When the FDIC has reason to believe a bank has engaged in conduct that violates both ECOA and the FHA

36
Q

True or False: The RO is not required to open a consult with the WO and Legal prior to making referrals or providing notice to the DOJ or HUD

A

False. A consult is required before notice or referral.

37
Q

When might a regulatory agency use informal EAs?

A

To address weak operating practices, deteriorating financial conditions, or actionable misconduct.

When findings or recommendations in an ROE will not, by themselves, attain timely corrective action from management.

38
Q

True or False: The use of an informal EA prevents the FDIC from subsequently pursuing a formal EA.

A

False: A MOU or Board Resolution do not prevent the FDIC from issuing a subsequent formal EA

39
Q

Can informal enforcement actions be modified?

A

YES, if changes occur that warrant a modification the FDIC may suggest a bank modify a BBR or agree to modify an MOU.
Modification procedures a similar to procedures to initiate a new action.

40
Q

Under what conditions can an informal EA be terminated? (5)

A

• The bank is in significant compliance with the provisions of the action.

• The bank’s condition has improved sufficiently/corrective action complete- so the informal action no longer needed

•The bank has partially met the provisions of the action, and a new informal action has been issued to address outstanding provisions or new areas of concern.

•Deterioration or lack of compliance leads to issuance of a new informal or formal action.

• The bank merges or is closed.

41
Q

Can the FDIC terminate a BBR?

A

No, since the FDIC is not a party to BBRs they cannot terminate them.

However, if a BBR contains requirements for reporting progress to the RO, the RO may notify the bank that reporting is no longer necessary.

42
Q

How does the FDIC document Informal EA Terminations?

A
  • For MOU terminated or BBR that served purpose = Letter from RD to Bank Board

-For bank closing or merger= File Memo from RO reviewer stating action was terminated or discontinued due to bank closing or merger

43
Q

What is the definition of an unsafe or unsound practice?

A

Any action or lack of action that is contrary to generally accepted standards of prudent bank operation that may result in risk of loss or damage to the bank, its shareholders, or the DIF

44
Q

What compliance practices are deemed unsafe or unsound?

A

-Operating without adequate internal controls and adequate audit program

-Failure to provide adequate supervision and direction over bank officers

-Failure to implement an adequate CMS.

45
Q

T or F:

Statutes and regulations have the force of law while supervisory guidance does not.

A

TRUE

46
Q

What are statutes and laws?

A

interchangeable terms that refer to legislation after it has been passed by Congress and signed into law by the President.

47
Q

What are rules and regulations?

A

Generally synonymous terms;

Agency statement designed to implement, interpret, or prescribe law or agency procedures/policy.

Since regulations implement laws, they are binding and have the force and effect of law

48
Q

What is Supervisory Guidance?

A

Sets forth “the FDIC’s expectations for FDIC-supervised institutions to operate in a safe and sound manner and comply with applicable laws and regulations, including those designed to protect consumers

Outlines the agencies’ supervisory expectations or priorities and articulates the agencies’ general views regarding appropriate practices for a given subject area.

NON- BINDING; do no have the force and effect of law

49
Q

In what scenario can the FDIC issue a Cease & Desist Order (C&D) against a bank or IAP?

A

To stop violations or unsafe and unsound practices

Also may require affirmative action (i.e. restitution)

50
Q

When can the FDIC issue a Cease & Desist order (grounds for the C&C)?

A

When facts reasonably support the conclusions that a bank or IAP has or will engage in :

-Unsafe or Unsound practice

-Violation of law and/or reg., written agreement with FDIC, or written condition imposed by FDIC for any application.

51
Q

When is a C&D Order called a consent order?

A

if the respondent stipulates to the issuance of the order,

52
Q

When is a C&D titled “Order to Cease and Desist”?

A

if issued through litigation following the issuance of a notice of charges, an administrative enforcement hearing, an administrative law judge recommended decision, an FDIC BOD decision and order, and any appeal by the respondent to the appropriate federal appellate court.

53
Q

T or F:

An order issued against a specific person as an IAP is termed a PC&D and is also described in this chapter.

A

TRUE

54
Q

T or F:

By ordering a bank or IAP to cease and desist from violations or practices and/or to take affirmative actions, the FDIC may prevent the the bank’s problems from reaching such serious
proportions as to require more severe corrective measures. Essentially, a cease-and-desist order is remedial with the general purpose of assisting the IDI or IAP in resolving its problems that are the basis for supervisory concern.

A

TRUE

55
Q

What happens when the bank or IAP stipulated to the FDIC’s issuance of the order (i.e. it is a Consent Order)

A

Yes, this waives all rights to an administrative enforcement hearing and all rights to an appeal

bank CONSENTS to the issuance of the an order

Eliminating the administrative enforcement hearing allows the bank or IAP to avoid lengthy and costly legal proceedings.

56
Q

True or False:

Banks or IAPs consenting to the issuance of an order cannot deny the alleged misconduct. The FDIC may allow a bank to consent to the issuance of a C&D without admitting or denying engagement of any unsafe or unsound practices or violations.

A

TRUE in appropriate situations

57
Q

What happens if a bank does not stipulate/ consent to a C&D?

A

The FDIC issues a notice of charges, which starts the formal administrative enforcement proceeding.

58
Q

Is the notice of charges for C&Ds a public document?

A

YES

contains a statement of facts constituting the alleged actionable misconduct and schedules the date and location for an administrative enforcement hearing to initially adjudicate (declare) the charges against the bank or IAP.

59
Q

T or F:

After the administrative enforcement hearing is conducted, the administrative law judge submits a recommended decision to the FDIC BOD. The FDIC BOD then takes the recommended decision into consideration and will issue a final decision.

A

TRUE

60
Q

When does a C&D become final and effective?

A

30 Calendar days after the order is served to the IAP or bank. Unless the order is issued with consent, which is effective on the date of issuance.

61
Q

What can happen if a bank or IAP fails to comply with a C&D (4)?

A

-CMPs

-Petition U.S District Court to enforce the order

-Remove and Prohibit IAP officials

-Terminating insurance

62
Q

T or F:

The FDIC can issue a C&D based on mere suspicion.

A

FALSE- mere suspicion does not constitute sufficient grounds for instituting the enforcement action.

63
Q

What is considered required evidence to support a notice of charges with a C&D (4)?

A

-FDIC requests to the Board and/or officers

-Promises of Actions taken by bank, Board, or Officers

  • Conferences and meetings held with bank Board or officers (meeting minutes)

-Bank records

Compliance Part 1: Exam Processes, Report Prep, and CMS_COLOMBO (6 decks)

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