OFAC Update

Important Questions You'll Have To Answer
We had a caller from a banking law office recently ask, "Has the FDIC changed the way they're doing BSA examinations? I have a very large bank that is really up on compliance and training, and the FDIC examiner came in this time and asked questions they never asked before. And my bank was written up for violations. Can you tell me if this is widespread? Are there other institutions that have noticed this?"What we learned when we called some of you and asked some questions was that our legal friend's bank had evidently never gotten (nor paid attention to) an updated copy of the FDIC Examination Manual (1996) and had convinced outside auditors they were more prepared for BSA than was realistic.

We also learned that examiners' emphasis is more regional than national. For instance, any states that had natural disasters during the past year in their area are more likely to have emphasis put on their disaster recovery preparedness. By the same token, areas that are hot drug or money laundering sections of the country are going to feel that "heat" in their BSA examinations.

The only national "problem" that we discovered is your preparation for the year 2000. Your examiners will be asking you about that-and you better be ready with the answers. The regulators are determined that the banking industry will not be found wanting when the time comes.

As early as June, 1996 a directive was issued from the Chief National Bank Examiner to all federally supervised financial institutions, and all examining personnel, to assess the risks present in existing computer systems related to the year 2000. As a financial institution you are required to establish a year 2000 plan; develop an institution wide year 2000 plan; and initiate year 2000 changes and testing.

As recently as May of this year, the FFIEC followed up on their initial warning with an official statement, a list of examiner's questions (see page 2), and a list of the Year 2000 Regulator's Goals.Financial institution personalities are completely diverse in their opinions of the year 2000 pitfalls for this industry. When Senator D'Amato sounded his alarm about the year 2000 problems, no less a person than Federal Reserve Chairman Alan Greenspan responded, "At this time, we are not aware of a specific banking problem that will prevent institutions from achieving century date compliance...we believe the largest banking organizations are generally aware of the challenges posed by the year 2000 and are managing the activities necessary to achieve compliance."

However, Comptroller of the Currency, Eugene Ludwig, was not quite as confident. In his statement he said, "...this matter requires the immediate attention of the banking industry. Our plan includes examining all national banks by the middle of 1998, concentrating first on institutions that are least prepared."

All agree that many areas of financial institutions will be affected, from forms and documents to systems, such as telecommunications systems, ATMs, audio response systems, and other environmental systems with embedded microchips, such as vaults, security and alarm systems, elevators, telephones, FAX machines, and HVAC (heating, ventilation and air conditioning.)

If you are responsible for the conversion for the year 2000, you need to go at once to Internet site http://www.ffiec.gov/y2k/yr2000.htm or call, toll free FAX BACK at (888)882-0982 for the in-depth examination procedures, policies and goals.

At the very least, every officer in your financial institution should be conversant with the answers to the examination questions on this page.

As for the BANKERS' HOTLINE staff-after talking to many of you about this problem, we believe the year 2000 will be a big non-happening passage of time for the financial industry.

Government offices and computers, on the other hand...

Copyright © 1997 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 7, No. 9, 8/97