FDIC Issues Letter Encouraging Supervised Institutions to Consider Customer Relationships on Case-by-Case Basis (with Lofchie Comment)
The Federal Deposit Insurance Corporation ("FDIC") issued a Financial Institution Letter encouraging supervised institutions to take a risk-based approach when assessing individual customer relationships. This approach would be preferable to the alternative where an institution simply declines to provide banking services to entire categories of customers.
The FDIC noted that if an institution follows existing guidance, and establishes and maintains an appropriate risk-based program, then the institution should be well positioned to manage customer accounts appropriately while detecting and deterring illicit financial transactions.
Lofchie Comment: This reassurance is relevant only when something goes wrong, i.e., when a financial institution's compliance system failed and the institution provided banking services to a bad actor. At that point, the quality of the financial institution's compliance system will be judged in retrospect. Given the failure, how confident can a financial institution be that a regulator will find its compliance system appropriate? Even if the federal bank regulators viewed the institution's compliance program as appropriate, nothing would prevent other regulators, including state banking regulators, from bringing charges. Considering the large size of the fines to which financial institutions have been subject, it would be understandable if firms adopted a "risk-based" approach to avoiding certain types of customers.