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Financial Services Law Insights and Observations

Fed announces enforcement action against Kansas bank for operational deficiencies

Bank Regulatory Federal Issues Enforcement Cease and Desist Bank Secrecy Act Anti-Money Laundering Kansas

On September 5, the Fed announced a cease and desist order (the “order”) against a Kansas bank holding company and its subsidiary bank (collectively, the “bank”) for having significant operational deficiencies, including deficiencies related to staffing, internal controls, credit risk management, lending and credit administration, capital, information technology and information security, books and records, regulatory reporting, liquidity and funds management, earnings, interest rate risk management, third-party risk management, and other deficiencies such as compliance with federal laws related to AML/BSA requirements.

The order directs the bank to, among other things, (i) strengthen board oversight; (ii) engage a third party to conduct an assessment of the bank’s corporate governance and staffing; (iii) improve lending and credit administration policies and procedures; (iv) correct the identified information technology and information security deficiencies; (v) revise its allowance for credit losses methodology to comply with supervisory guidance; (vi) enhance interest rate risk management practices; (vii) improve internal controls; (viii) submit a written plan to maintain sufficient capital; (ix) enhance liquidity risk management; and (x) improve the bank’s earnings and overall condition. The order also directs the Bank to improve its BSA/AML compliance program and internal audit program, and to take all necessary steps to correct all violations of law or regulation and to ensure future compliance.