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#741960 - 05/29/07 09:26 PM CIP & Loan Participations
Jodi Offline
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Jodi
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In situations involving loan participations, isn't CIP the responsibility of the bank where the loan participation originates (the other bank)? If yes, what is our CIP obligation when one of the parties in the loan participation opens a deposit account later (ex. 2 years later, participation loan still on the books)? Do we now have to CIP him since our bank did not with the loan participation?

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#742015 - 05/29/07 10:26 PM Re: CIP & Loan Participations Jodi
David Dickinson Offline
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1. Yes. They are not your customer according to CIP.

2. Since the customer was exempt from CIP before, they are a "new" customer to your institution. However, you most likely have a lower risk with this customer since they have some previous history with your bank. However, you would still need to get the 4 ID's and some verification (probably minimal).
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#745473 - 06/03/07 05:52 PM Re: CIP & Loan Participations Jodi
Elwood P. Dowd Offline
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If your written CIP exempts existing customers from the process, you could say that the borrower was already a customer when he opened the deposit account and CIP was not required. That would be technically correct, but it's a little too clever for me. Just do it.
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#745794 - 06/04/07 05:03 PM Re: CIP & Loan Participations Elwood P. Dowd
KK Offline
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Is there a need to ensure the originating bank did perform their CIP as you will be relying on it?

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#745797 - 06/04/07 05:05 PM Re: CIP & Loan Participations KK
David Dickinson Offline
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Not from a regulatory standpoint. It's exempt.
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#759721 - 06/25/07 02:25 PM Re: CIP & Loan Participations David Dickinson
Key Lime Pie Offline
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I had not paid any attention to the section "Reliance on Another Financial Institution" in the BSA Examination Manual on page 50 until we participated with another bank on a loan. We are the originating bank and the participating bank requested us to sign a certification indicating we were subject to AML/BSA regulations and a board approved BSA/AML policy which includes CIP. Could anyone address this issue? Should the participating bank request such a document and is the originating bank required to povide such? I had not encountered this before and would appreciate any feedback.

Thanks!

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#759757 - 06/25/07 02:48 PM Re: CIP & Loan Participations Key Lime Pie
David Dickinson Offline
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This section is dealing with CIP when it IS your responsible - it is your customer. This is regulatory relief issue generally used when an affiliate has already CIP'd a customer. When the customer comes to a 2nd affiliate, the affiliates can share the CIP info and not burden the customer again (if they comply with the requirements outlined on page 50 of exam manual.


When you sold the loan to the participating bank, they did not need to conduct CIP. It is clearly exempt. They should have not requested this information and you have no obligation to provide it.
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#759765 - 06/25/07 02:58 PM Re: CIP & Loan Participations David Dickinson
Elwood P. Dowd Offline
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David is correct. There is a difference between relying on another institution to perform CIP on your behalf and buying a loan from the original lender.

When you buy a loan, including a participation, the borrower is not opening an account with you and you have no CIP requirements. As banks may buy loans from a number of sources, not just other banks, there is no requirement to verify that the original lender performed CIP. The original lender may not have had any CIP obligations.

Your purchaser is confused and, if you decide to provide the unnecessary certifications, I would point that out to them in the cover letter.
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#759769 - 06/25/07 03:01 PM Re: CIP & Loan Participations David Dickinson
rlcarey Offline
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"When you sold the loan to the participating bank, they did not need to conduct CIP. It is clearly exempt. They should have not requested this information and you have no obligation to provide it."

David - That is a true statement as far as the regulation goes.

However, whether or not they should have requested this information would be solely based on the participating's banks board approved CIP policy and any obligation to provide the information would be found in the participation agreement that was signed by both parties.
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#759807 - 06/25/07 03:23 PM Re: CIP & Loan Participations rlcarey
Rosie O'Grady Offline
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You're all right, but even if you aren't the originating FI, the examiners want to see that you've done additional due dilgence by ensuring that the other institution has a Board approved CIP policy. We had to show this research to our regulator.

Good Luck!

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#759821 - 06/25/07 03:28 PM Re: CIP & Loan Participations Rosie O'Grady
Elwood P. Dowd Offline
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Sorry, but that's not extra due diligence, it's just wrong.
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#759862 - 06/25/07 03:55 PM Re: CIP & Loan Participations Elwood P. Dowd
Rosie O'Grady Offline
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I agree, but tell it to the regulators! I jokingly call the BSA Exam Maual "Make a Regulation" because of all the extra intrepretation that some of the regulators seem to put on various aspects....

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#759896 - 06/25/07 04:22 PM Re: CIP & Loan Participations Rosie O'Grady
John Burnett Offline
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And as long as bankers accede to those "extra interpretations," the expectations continue to be ratcheted upward. Examiners may suggest something that isn't in the rules because they think you might benefit from it. You're not obliged to follow such a suggestion.

In some cases, examiners may tell you to do something that you don't agree is required by (1) the law, (2) the regulation, or (3) the exam manual. Sometimes, it makes sense to "push back" on the examiner's requirement, asking for a citation that justifies it. In my opinion, this is one of those times. The regulation CLEARLY says that CIP is not required when your bank is purchasing a participation. It's simply wrong for an examiner to second-guess the clear language of the regulation.
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#760913 - 06/26/07 03:59 PM Re: CIP & Loan Participations John Burnett
Brad B Offline
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KS
We just had our exam and went round and round with our examiner on this issue. He insisted loan participations we've purchased need to follow the "Reliance on Another Financial Institution" section and wanted a CIP clause in our purchase contract but we knew better. We finally prevailed when we pointed out the specific Q&A that says assets purchased from another financial institution are not "accounts" so those borrowers can't be "customers" according to the definitions of each. Sometimes you have to take the examiners back to the basics and show them the definitions. Look at question #2 under the definition of "account" at this link: http://www.fincen.gov/faqsfinalciprule.pdf

Our examiner told us he had been successful at many banks to get a clause in their purchase agreements before he reached us. It's a bad deal when they "require" extra work be put in that isn't really "required."
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#761051 - 06/26/07 05:14 PM Re: CIP & Loan Participations Brad B
Elwood P. Dowd Offline
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Quote:
We finally prevailed when we pointed out the specific Q&A that says assets purchased from another financial institution are not "accounts" so those borrowers can't be "customers" according to the definitions of each.


Bless you for doing your homework and supporting your argument rather than just rolling over. It's very difficult to move a field examiner off of a position which he or she has used to "successfully" criticize a number of bankers too cautious to push back.
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#761141 - 06/26/07 05:44 PM Re: CIP & Loan Participations Elwood P. Dowd
BSA4LIFE Offline
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I learn so much from this forum. Thank you to all who posted to this thread.

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#762997 - 06/27/07 11:27 PM Re: CIP & Loan Participations BSA4LIFE
Dolly Nugent Offline
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"Training provided to examiners was proven to be ineffective based on the inaccurate information provided to bankers during examinations." I would love to be able to put that in an examination report about a regulator! How often to we get criticized for an ineffective training program! They can't even train their own people!

If you disagree with your regulator DON'T back down!!! Let me repeat -- DON'T back down! Make them show it to you in the regulation. I've been doing this for over 20 years now and examiners can be wrong. Pushing the issue (in the right way) will only gain you respect as a compliance professional. And your senior management will appreciate your efforts!
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#773897 - 07/12/07 09:23 PM Re: CIP & Loan Participations Jodi
Janec Offline
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Joined: Feb 2006
Posts: 48
We recently went thru an exam with the FDIC and this question was raised as I was also under the impression that participations were exempt. The examiner provided me with a written response from the regional office that states: If the lead bank is the sole party making the credit decision, and therefore the loan is closed prior to the purchasing bank even getting involved, then this is a purchased asset that would fall under the exemption. If, on the other hand, both the lead bank and the purchasing bank play a role in the credit decision, then the purchased asset exclusion does not apply. The purchasing bank would either need to obtain CIP information itself, or could rely on the lead bank and follow the requirements of 103.121(b)(6). We usually get involved in participation loans at the request of the lead bank and we're not about to take part in the loan without looking at credit, so we do take part in the credit decision and are subject to the certification process. You need to ask your commercial lenders how you acquired your participation loans. As the FDIC examines the banks we participate with, more banks discover they are subject to the rule.

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#775489 - 07/16/07 12:45 PM Re: CIP & Loan Participations Janec
Elwood P. Dowd Offline
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Quote:
If the lead bank is the sole party making the credit decision, and therefore the loan is closed prior to the purchasing bank even getting involved, then this is a purchased asset that would fall under the exemption. If, on the other hand, both the lead bank and the purchasing bank play a role in the credit decision, then the purchased asset exclusion does not apply.


While this interpretation comes from the FDIC, not FinCEN, from my perspective, it is common sense. A bank making a "yes" decision on a credit application is opening an account for a customer. A bank buying some or all of a loan that has already been made is not.
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