How To Handle Confidential Investigations of Bank Activities

By: John F. Libby
– ABA Banking Journal

Scenario: In the course of a safety and soundness examination, bank examiners identify certain unusual transactions and bring the issue to the attention of management. Management, in turn, recognizing the potential severity of the issue presented, decides that the matter should be referred to the Audit Committee of the bank's Board of Directors for appropriate action. Now what?

Not every issue with the potential for substantial risk of financial or reputational loss warrants a special investigation conducted by outside, independent counsel.

However, if the circumstances suggest the possibility of significant employee or customer negligence or misconduct, or violations of law or regulations, the prompt authorization of a full, independent, and confidential investigation may be the best approach, particularly because it demonstrates to regulatory authorities that the board and bank management acted with both dispatch and a desire to correct any identified deficiencies.

Of course, authorizing and conducting a confidential investigation is separate from, and does not supplant, the requirement that the bank file any necessary suspicious activity reports.

Here are some of the key issues to be considered for the confidential investigation.