IBA Compliance Connection

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We discovered that our treasurer added herself as the POD beneficiary on her uncle’s account at our bank shortly before he died. We immediately removed the treasurer from the account and did not distribute the account funds to her. We plan to fire the treasurer very soon and will file a suspicious activity report (SAR). Is there anything else we should do, such as notifying the IDFPR and our primary federal regulator, the FDIC?

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by

admin

We do not believe that you are required to notify the FDIC or the IDFPR of the employee’s activity. The FDIC’s regulations require you to notify the FDIC regional office when filing a SAR for “violations requiring immediate attention, such as when a reportable violation is ongoing.” In this case, the violation is not ongoing, and it did not result in any loss to your bank. Of course, you may wish to consider notifying your regulators because the violation involved a bank officer, and they may appreciate the notification coming before your bank’s next scheduled examination.

Additionally, the FDIC’s regulations require you to notify your board of directors of the SAR filing. The FDIC’s Risk Management Manual of Examination Policies also recommends notifying your fidelity insurer that you have filed a SAR involving fraudulent conduct by a bank employee (without providing a copy of the SAR), although the exact notification requirements depend on the terms of your insurance contract.

For resources related to our guidance, please see:

  • FDIC Regulations, 12 CFR 535.3(b) (“(2) In situations involving violations requiring immediate attention, such as when a reportable violation is ongoing, the FDIC-supervised institution shall immediately notify, by telephone, an appropriate law enforcement authority and the appropriate FDIC regional office (Division of Supervision and Consumer Protection (DSC)) in addition to filing a timely report.”)
  • FDIC Regulations, 12 CFR 535.3(f) (“Notification to board of directors. The management of an FDIC-supervised institution shall promptly notify its board of directors, or a committee thereof, of any report filed pursuant to this section.”)
  • FDIC Risk Management Manual of Examination Policies, Section 10.1, Suspicious Activity and Criminal Violations (“BONDING COMPANY NOTIFICATION

    The FDIC and financial institution management have a mutual interest in ensuring that all of a financial institution’s employees are protected by a fidelity bond. When a financial institution files an SAR involving an employee, it normally is required to notify its fidelity insurer of the subject activity. However, a financial institution may not provide a copy of the SAR to the insurer.

    The notification requirement is usually included in the terms of the insurance contract and is not dependent upon the filing of a claim against the insurance coverage. The standard financial institutions bond contains a termination clause that automatically cancels coverage of any employee as soon as there is knowledge of any dishonest or fraudulent act on the part of such employee.”)