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Examiners Looking Closer at Compliance

During the American Bankers Association Compliance Conference, John Atkinson, from the Atlanta Office of the Federal Reserve Bank, related a list of the most common violations Fed examiners are reporting on regulations.

Regulation CC
On the Expedited Funds Availability Act's Regulation CC they are finding that: Checks that must be given next day availability are being held instead of being made available. The $100 that is supposed to be made available next day is not being paid out or made available for payout.

Policy does not equal practice.

When a financial institution discloses two and five day holds for local and non-local checks, that is exactly what they must do for most deposits. They may make some available sooner, but what they disclose is what has to be done on the majority of their accounts.

"The problem," said John, "is that an institution will disclose two and five day availability, and then make everything available the next day. The explanation being offered," he related, "is because bankers are afraid of being 'ripped off' by con artists if they reveal that they are really paying out the next day.
"But there are many, many financial institutions disclosing next day availability," John told the compliance officers in attendance, "and having no problems at all."

The bottom line is that a financial institution will be written up if the policy does not equal the practice. They must be the same.
No lobby notices.

Reg CC says lobby notices are a must. Your availability policy has to be there. Take a look and be sure yours are in place before your examination.

Not enough-or no-employee training.

Reg CC training should be part of your regular training, and should be ongoing.

Regulation D
John then turned his attention to Regulation D covering Reserve Requirements of Depository Institutions. He revealed the fact that numerous common Reg D violations are being reported by examiners. Evidently, there is still some confusion over what accounts are covered.

One of the violations he pointed out is mistakes on the eligibility of NOW accounts.

"But the most common problem by far," he reported, "is the violation of rules regarding transfer limitations on MMDAs.

"By regulation, there are six transfers permitted on MMDAs per month-three of which can be by check. Any over six, and the account becomes a transaction account and changes the reserve requirements." John went on to point out that some financial institutions have what are commonly known as "sweep" accounts, where many more transfers than six a month are being accomplished. Such activity, and other creative "get-arounds" are disallowed, according to John. And the regulators from all of the agen cies are starting to crack down on this violation of Reg D.

"Civil money penalties have been assessed for this violation, but have not been publicized," he said, "and the penalty can be $1,000 per account per day."

Transfers at the ATM are not counted in the six permitted, but transfers by FAX or by PC are considered to be telephone transfers and do count toward the six.

"More attention must be paid to the compliance of these regulations by the compliance officer and the financial institution," John cautioned, "because the examiners are paying more attention to them."

John Atkinson is A.V.P. of the Federal Reserve Bank of Atlanta, in charge of the consumer Affairs, Trust, and Electronic Data Processing Examination Sections of the Department of Supervision and Regulation. In addition to the regulations mentioned above, he covered common violations to Reg E in his compliance update session, which we will report on in a later HOTLINE.

Copyright © 1992 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 3, No. 3, 7/92

First published on 07/01/1992

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