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Financial Services Law Insights and Observations

FDIC issues February enforcement action against New York bank for lack of effective third-party oversight

Bank Regulatory Enforcement FDIC Third-Party Bank Secrecy Act EFTA New York

On March 29, the FDIC released its list of February 2024 enforcement actions, which included a consent order against a New York digital bank in which the FDIC alleged a lack of sufficient oversight of the bank’s third-party relationships. According to the consent order, the bank allegedly engaged in unsafe and unsound banking practices due to a lack of internal controls appropriate to the bank’s size and risk of its third-party relationships, and weaknesses in board oversight of asset growth and management, among other issues. The FDIC further alleged that the bank violated several laws including BSA, EFTA, and TISA.

The FDIC ordered the bank’s board to increase its oversight of the bank’s management and the bank’s financial condition commensurate with the size of the bank and the risk of its third-party relationships. Further, the FDIC ordered the board to correct or eliminate any unsafe banking practices or violations of the law. On data and systems, the FDIC ordered the bank to conduct a data and systems review and develop a written action plan to address any deficiencies or weaknesses. Notably for the bank’s third-party relationships, the FDIC ordered that the bank’s procedures, data, and systems include “clear lines of authority” responsible for monitoring bank procedures and effective risk assessments. Finally, among other things, the FDIC ordered the bank to implement look-back reviews and have its board review the bank’s program to ensure compliance with consumer-related laws.