Tag Archive for: Compliance

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Executive Letter: Benefits for Every Member of the Organization

Rose Oswald PoelsBy Rose Oswald Poels

In the last year, bankers from around the state have made an incredible effort to make the most of their membership with the Wisconsin Bankers Association (WBA). When 2022–2023 Chair Dan Peterson began his term last June and spearheaded the member-wide initiative to increase engagement, it was impressive to see the multitude of ways in which bankers chose to connect with both their peers and the Association as a whole.

June, the beginning of WBA’s fiscal year, is the perfect time to reassess your involvement in the Association and uncover the programs, groups, and opportunities available for all. I encourage bank leaders to continue to emphasize the employee benefits brought forth by WBA and support all members of the bank in finding the engagement opportunities that are the most meaningful for their professional growth.

The WBA Advocacy Officer program connects individuals with an interest in public policy to opportunities to act and provide input on legislative and regulatory policy items. Working alongside members of the WBA Government Relations team and other Advocacy Officers from throughout Wisconsin, these banker volunteers regularly communicate with bank officers and directors, coordinate advocacy programs such as “Take Your Legislator to Work” days and fundraising initiatives, as well as stay abreast of the latest legislative and governmental issues.

BOLT, or Building Our Leaders of Tomorrow, members represent Wisconsin’s current and emerging bank leaders. The free program is focused on providing bankers with the opportunity to learn, network, and expand their leadership in the banking industry. In addition, bankers are encouraged to attend the leadership summits — held twice per year — to make connections, discuss challenges, and explore new opportunities for personal and professional development.

The CEOnly and CFOnly Network is open to all CEOs and CFOs currently employed at a Wisconsin-chartered bank. The group, which focuses on networking and idea sharing related to Wisconsin’s banking industry, provides bankers with the platform to anonymously ask questions and receive advice as well as connect with peers at up to three in-person networking events.

The newest benefit — WBA’s Diversity, Equity, & Inclusion (DEI) Employee Resource Group (ERG) — was formed in 2022 as a safe space for bankers of historically underrepresented backgrounds to meet and hold open-forum discussions. The ERG, led by a popular speaker at WBA events, Dr. Alonzo Kelly, provides a virtual space to share ideas and experiences, ask questions, and learn from others.

WBA’s Compliance Forum is the Association’s premier Wisconsin-specific program focused on presenting updates and addressing the latest hot topics in compliance. In addition to gaining in-depth information on key issues, members have the opportunity to attend several Compliance Forum events throughout the year to connect with peers, gain CLE and other compliance certifications (subject to approval), and gain access to the Forum’s Google Group.

WBA Connect is a collection of banker-only peer groups designed to keep bankers connected and help one another grow. The free benefit — currently representing bankers with interests in DEI, enterprise risk management, human resources and organizational development, marketing, retail banking, and technology and operations — provides excluive access to the related Google Group as well as the possibility to coordinate in-person networking meetings.

Not to mention the various digital resources — including, but not limited to, the Best Practices Library, Legal Call Program, and Banconomics.com — our Association works to ensure that you and your staff have the resources relevant with the work you do each day and the opportunities to get involved, stay informed, and make an impact both in your community and throughout the banking industry.

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May 2023 Compliance Journal

The May 2023 WBA Compliance Journal is now available. In this edition, readers will find an article covering recently issued guidance by FDIC, CFPB, and OCC, each of which identify activities expected to be a focus of upcoming compliance examinations. Readers will also find an article highlighting an interagency statement and an interim final rule regarding the transition from US LIBOR. The publication also includes a summary of recently published agency rules and notices, other important compliance-related updates, and a WBA Education Calendar which lists upcoming training events.

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Loan Review Best Practices: Key to Combatting Credit Risk in Stressful Times

By David Ruffin

Uncertainty seems to be the only constant on the economic horizon these days.

Despite benign risk metrics across the country’s credit portfolios, there is an almost industry-wide sentiment that credit stress looms ahead. According to the Risk Management Association (RMA) Annual Community Bank Survey, 84% of community bankers indicated that credit risk was a top concern.

One thing we do know is that effective and efficient loan reviews can help you understand your portfolio and identify potential risk exposures. And — more importantly — risk that’s already emerging. It’s this early detection that helps institutions minimize losses. Also encouraging is that automated technology is making it possible to achieve these goals with amazing agility.

Now is the time for community banks to move from a sluggish, decades-old loan review process to an approach that will help you proactively identify potential credit weaknesses, gain deep knowledge about the subsegments of your portfolio, learn where the vulnerabilities exist, and act to mitigate risk at the earliest opportunity.

It’s time to consider credit review approaches that facilitate an expansive range of best practices:

1. Trust your reviews to professionals with deep credit experience — not just junior CPAs.

Your reviewers should be seasoned experts skilled in the qualitative and quantitative axioms of credit, with hands-on experience in lending and risk management. Because their experience will drive better reviews and deliverables, it’s a good idea to ask for bios of people assigned to your institution.

2. Confirm your review includes paralegal professionals to conduct separate documentation reviews.

With growing evidence of degradation in back-shop support, it is essential that your loan reviews include specialists with technical expertise in regulatory/legal compliance, lending policy adherence, policies, collateral conveyances, servicing rules, etc. — working in tandem with seasoned credit professionals.

3. Insist on smart, informed sampling.

Relying solely on random samples and reviewing only the largest credits is insufficient today. To uncover vulnerabilities in specific segments of your portfolio, rely on a selection process that helps you choose very informed samples indicating possible emerging risk.

4. Segregate and differentiate exceptions in documentation, credits and policy.

These exception types all have diverse characteristics, and they need to be quantified separately in order to correct the various deviations effectively.

5. Quantify both pre- and cleared exceptions.

In the best of times, many loan reviews show almost no bottom-line degradation in loan quality for the portfolio as a whole. But on close examination, you may find significant numbers of technical and credit exceptions indicating that the quality of your lending process itself may need to be tweaked.

6. Understand your own bank’s DNA.

In this complex economic environment, it is imperative for institutions to analyze their own idiosyncratic loan data. Arm your loan review team with the ability to automatically drill down into your portfolio and easily examine trends and borrower types — to inform risk gradings, assess industry and concentration risk, etc. Seasoned reviewers will be incredibly valuable in this area.

7. Observe pricing based on risk grades, collateral valuations, and loan vintages.

Common risk characteristics are shared by loans originating around the same time and credits that tend to migrate as a group. Isolating and analyzing those can answer the important question, “Are you being paid for the risk you’re taking?”

8. Pair loan reviews with companion stress testing.

Lately, regulators are encouraging stress tests as a way to learn where risk may be embedded. Companioning the tests with loan reviews is a productive way to gain this knowledge. Start at the portfolio level and do loan-level tests where indicated.

9. Transparently report and clear exceptions in real time.

Benefit from using FinTech efficiency to remove huge amounts of time, team meetings and staff intrusions from the traditional approach to reviewing loans. Using an online loan review solution, teams can see exception activities and clearances as they happen.

10. Ensure that reviewers interpret risk grade parameters according to your institution’s definitions.

Measures used to qualify credits in the “pass” risk-grade category are specific to your institution. Reviewers should use only this touchstone to interpret pass grade requirements for any credit — without interjecting personal biases.

11. Comply with workout plan requirements prescribed by interagency regulators.

Workout plans are typically designed to rehabilitate a troubled credit or to maximize the repayment collected. Regulators now require institutions to examine these plans independently as a standard loan review procedure that reflects a healthy degree of objectivity.

12. Deliver comprehensive management reports and appropriate high-level board reports with public/peer data.

Management should receive prompt and thorough loan review reports and board members should be provided high-level reports with appropriate, but less detailed, information. Public data or analyses of your institution’s performance as compared to peers should accompany reporting.

13. Conduct loan reviews as a highly collaborative and consultative exercise — counter to “just another audit.”

An effective loan review is not an internal audit experience. It’s an advisory process, and this approach is extremely important to its ultimate success. Substantive dialogue among participants with differences of opinion is key to favorable outcomes for the institution.

14. Take advantage of a technology platform to automate every possible aspect of the loan review process.

Best practices call for the efficiency that comes with automating the loan review process to the maximum extent possible, without sacrificing substance or quality. Today, technology drives the race against loan risk, making early detection of vulnerabilities faster, easier, and more complete.

In Summary

Loan reviews that adhere to industry best practices are critical to an institution’s risk-management strategy and should be regarded as such. It’s a one-two punch: (1) deeply qualified reviewers and (2) automated technology that, when combined, deliver a more efficient, less intrusive loan review process that will help combat the looming credit stress ahead.

David Ruffin is Principal of IntelliCredit, a division of QwickRate — a WBA Associate Member. He has extensive experience in the financial industry including a long and pronounced emphasis on credit risk in a variety of roles that range from bank lender and senior credit officer to the co-founder of IntelliCredit and its technology that is revolutionizing a decades-old loan review process.

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April 2023 Compliance Journal

The April 2023 WBA Compliance Journal is now available. In this edition, readers will find an article summarizing key components of the final Section 1071 rule. Readers will also find summaries of recently published agency rules and notices, and other important compliance-related updates for bankers.
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Bankers Continue Their Education, Remain Compliant

Stand-alone BSA/AML conference returns on May 10–11!

Back again in 2023 as its own conference, the Wisconsin Bankers Association is excited to offer its BSA/AML Conference in person at the Chula Vista Resort in Wisconsin Dells this spring!

In order to maintain the credentials required for managing, auditing, or implementing the portion of their institution’s compliance function that relates to money laundering, terrorist financing, or national security, banks are required to provide ongoing training for those responsible for BSA and AML compliance.

The WBA BSA/AML Conference provides bankers with the opportunity to hear and interact with regulators — at both the state and federal functional regulatory agencies — and gain instruction in BSA/AML compliance issues. While the conference curriculum changes each year, bankers return year after year to ensure they remain up to date on issues, topics, and guidance related to their compliance responsibility.

The two-day event will cover topics including:

  • AML Software Identifications, & Proposals, Payments, and Compliance Update
  • SAR Trends and Updates
  • Keys to Completing the SAR Narrative
  • Elder/Vulnerable Adult Exploitation
  • AMLA Update
  • Beneficial Ownership Identification Reporting (BOIR)

In addition to the various networking opportunities WBA events are known for, attendees will receive two full days of instruction from speaker Mark Dever of ProBank Austin and Nick Bonnema of Wipfli LLP.

“In this rapidly changing BSA environment, attendees will get the latest status on a variety of topics and issues that are evolving, along with feedback and guidance from the examiners, and of course, the opportunity to network with their peers,” highlights Dever. “Attendees can make the most out of their attendance by coming armed with questions on BSA, and the willingness to actively participate in the various sessions.”

Those interested in attending the event on May 10–11 should visit wisbank.com/BSA-AML to learn more or to register.

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Executive Letter: CFPB Releases Final Section 1071 Business Data Collection Rule

Rose Oswald PoelsBy Rose Oswald Poels

Last Thursday, the Bureau of Consumer Financial Protection (CFPB) issued its long-awaited final Section 1071 business data collection rule. The Wisconsin Bankers Association (WBA) has been engaged in the rulemaking process since the proposal’s inception. While I know the general requirements for this rule came directly from the Dodd-Frank Act, CFPB chose to add in many more data points than what the law required which have made this rule very burdensome for the banking industry and intrusive for banks’ small business customers.

Just this past fall, I, along with several Wisconsin bankers, shared specific concerns of the proposal directly with CFPB Director Rohit Chopra. I am disappointed our concerns were largely disregarded given the requirements within the final rule. Our concerns of data privacy for small business customers remain.

Given the low threshold for rule applicability, the amount of data to be collected and reported, and the changes in process that will need be implemented, the rule will be burdensome to implement. While I and the WBA Legal team are currently working through the final rule and accompanying resources, below are highlights of the final Section 1071 rule. WBA will certainly be hosting educational events and will be creating resources around the final rule in the forthcoming months.

Highlights

  • The final rule applies to banks that originated at least 100 covered originations in both of the two previous years.
  • “Small business” means one with gross revenue of $5 million or less in the preceding fiscal year.
  • Small businesses will be able to self-identify as women-, minority-, or LGBTQI+ owned.
  • Lenders will be able to rely on financial and other information provided by the small business applicant.
  • Mandatory compliance dates are staggered based upon the number of covered originations made by each bank, in particular:
    • A bank must begin collecting data and otherwise complying with the final rule on October 1, 2024, if it originated at least 2,500 covered originations in both 2022 and 2023.
    • A bank must begin collecting data and otherwise complying with the final rule on April 1, 2025, if it:
      • Originated at least 500 covered originations in both 2022 and 2023;
      • Did not originate 2,500 or more covered originations in both 2022 and 2023; and
      • Originated at least 100 covered originations in 2024.
  • A bank must begin collecting data and otherwise complying with the final rule on January 1, 2026, if it originated at least 100 covered originations in both 2024 and 2025.

As mentioned above, the CFPB has created resources which accompany the final rule. The resources include an executive summary, quick reference guides, and a data point chart.

View the Final Rule and Related CFPB Resources
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Compliance Column: What Wisconsin’s Transfer by Affidavit Form Means for Bankers

WBA Creates Transfer by Affidavit Guide

By Scott Birrenkott

When an individual dies and leaves property subject to administration in Wisconsin, there are several types of estate procedures which can be followed. One such method involves the use of a form known as a Transfer by Affidavit (sometimes referred to as a Small Estate Affidavit). The Transfer by Affidavit is often a popular option due to its simplicity and ease of use. Because of this, Wisconsin banks are likely to encounter individuals seeking to use this form to close out accounts.

It is important to remember that a bank should not be advising or recommending anyone use a Transfer by Affidavit Form — or any other particular method to wrap up an estate. When a customer dies, the decedent’s family, attorney, or other party acting as the executor must determine the appropriate method. Estate matters can be quite complex, and the Transfer by Affidavit is not the only method available. Oftentimes, a relative of the decedent may come to the bank asking for advice on how to administer an estate. However, it is important that bankers know to refer these individuals to an attorney.

A Transfer by Affidavit may only be used for estates having a value of $50,000 or less (but again, note that it is not the only option available for small estates).

The individual who presents a Transfer by Affidavit is known as an “affiant.” There are four categories of affiants who may use a Transfer by Affidavit, that being an heir, trustee, person who was guardian at the time of the decedent’s death, and a person named in the will to act as a personal representative. As with all aspects of the Transfer by Affidavit, the affiant must determine their capacity and represent it on the form — not a banker. By completing the Transfer by Affidavit, the affiant makes various statements — under oath — regarding the property, and by accepting the decedent’s property, the affiant assumes certain duties. Most of these duties do not concern the bank, but there are a couple matters which do.

First, if the affiant is a person named in the decedent’s will to act as personal representative, banks must wait 30 days before releasing the property. The reason for this waiting period is that if, within the 30-day period, the bank is presented with an affidavit for the same decedent from another person, then the bank is prohibited from releasing the property. Essentially, it is a waiting period in which other parties might express an interest in the property. If this happens, then the bank should not release the property until instructed to do so by court order.

Another responsibility the affiant has is to notify the state of Wisconsin if the decedent (and/or the decedent’s spouse) ever received the benefit of certain medical services. The Transfer by Affidavit Form includes a section related to these services and, if the decedent (or spouse) received such benefits, or the affiant does not know, then the affiant must send notice to the state and provide receipt of that notice to the bank before receiving property. If the affiant does not provide this receipt, the bank cannot release the property.

Oftentimes, the Wisconsin Bankers Association (WBA) is asked certain questions such as: must a bank verify the affiant’s status (e.g., as an heir)? Or, what if the affiant lies or is mistaken regarding the property or other duties? These questions, and others, can be answered by considering the statutory protections received by banks releasing property to the affiant. That is, Wisconsin law provides for release of liability of the transferor of the property. Meaning, liability protections for the bank. This protection is contingent on the above conditions, but in general, banks should consider that by signing the Affidavit Form, the affiant certifies that the contents of the Affidavit are true and correct. Unless the bank, for some reason, had actual knowledge that an affiant was lying or otherwise misrepresenting information (e.g., the affiant describes property as being under $50,000 but bank knows for a fact that the estate holds property over $50,000), then the bank is not required to verify the information beyond what the statute otherwise requires.

While the above serves as a brief overview of Wisconsin’s Transfer by Affidavit Form, there are some additional nuances worth considering which are beyond the scope and format of this article. However, WBA recently created a Transfer by Affidavit Guide which goes into greater detail regarding the form, who may use it, how it may be used, along with a discussion of the law, step-by-step instruction for reviewing the form, and a question-and-answer section. This guide may be found on WBA’s website within the compliance resources section at wisbank.com/resources/compliance.

For any questions regarding the Transfer by Affidavit Form, or other topics, contact WBA legal at wbalegal@wisbank.com or 608-441-1200. Additional compliance resources, including Q&A’s, can be found by visiting wisbank.com/resources/compliance.

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March 2023 Compliance Journal

As spring arrives, so does the March 2023 WBA Compliance Journal. In this edition, WBA Legal covers upcoming changes to FDIC’s deposit insurance rules, FinCEN’s alert on the nationwide surge in mail theft-related check fraud schemes, and a Wisconsin Supreme Court decision which upheld Wisconsin’s long-established rules for priority under receivership rules. The publication also includes a summary of recently published agency rules and notices and other important compliance-related updates for bankers, including links to FRB’s Bank Term Funding Program resources and changes made to FDIC’s Section 19 rules as a result of the Fair Hiring in Banking Act.

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February 2023 Compliance Journal

The February 2023 WBA Compliance Journal is now available. In this edition, readers will find an article asking, “What is a ‘covered application’ under Section 1071?” in anticipation of a final rule slated to be released in March, according to CFPB’s regulatory agenda. Also, agency guidance regarding supervisory expectations for HMDA reporting by those affected by the lower reporting threshold for closed-end mortgage loans, summaries of recently published agency rules and notices, and other important compliance-related updates for bankers.
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Legal Q&A: Name and Signature Inconsistency in Documentation

Banks should consider document type, purpose, relevant issues

By Scott Birrenkott

Q: What name should banks use for customers when completing documents?

A: The name that should appear, and be signed, on documents depends on a few things. Primarily, the type of documents being signed, the purpose for which the customer’s name is appearing, and any relevant rules.

Typically, a customer has a single, consistent name which will appear on documents, disclosures, and other communications and match their signature. However, there are situations where this is not the case. A customer might use inconsistent capitalization, or go by different names, such as a “nickname,” or perhaps use their middle initial in some situations, or a “Jr.” or “Sr.” designation. There may also be situations where a customer changes their name, either because of a marriage, or other situation — such as a change in identity or gender transition — and a change from an individual’s “deadname.”

Banks should consider how various types of documentation can be affected. For example, if opening a checking account, the specimen signature is important to verifying transactions on the account. If a customer provides a specimen signature which does not match the signature they intend to use on checks, that can result in a question as to whether certain items are authorized. For this reason, the signature card should match the name the customer intends to use when authorizing transactions and should be updated if a change occurs.

When entering into a contract, best practice would be using the customer’s legal name, as provided by customer. The customer should sign in a manner by which they intend to be bound. There are no specific standards for a signature, other than that it reflects the party’s intent to be bound. For example, a customer might sign in a manner different from the way their name otherwise appears on documentation, such as whether they use a middle initial in their signature or not. Or how they capitalize their signature, or whether they are able to sign their name at all and perhaps can only make a mark or symbol such as a checkmark or “X.”

Banks must consider whether the documents properly identify its customer, and whether the signature affixed to the document reflects a valid contract. In this regard, it is ultimately a matter of policy and preference, but a best practice recommendation would be for the bank to be consistent in how the name appears throughout all the documentation, and the signature itself.

However, when it comes to Uniform Commercial Code (UCC) financing statements, there are specific rules which must be followed. This article does not delve into the specifics, but banks should consider that for filing UCC financing statements, the filing should reflect the debtor’s exact name as required by Wis. Stat. section 409.503.

For any questions regarding customer names, accuracy of UCC financing statements, or other topics, contact WBA legal. Additional compliance resources can be found at wisbank.com/resources/compliance.

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questions@wisbank.com

608-441-1200

4721 S Biltmore Ln.
Madison, WI 53718

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