Is your financial institution Regulation O compliant? How transparent are transactions among insiders of your financial institution? Insider abuse can be difficult to detect and cannot only lead to substantial FDIC penalties but will increase the reputation risk of your financial institution.
Regulation O, issued by the Federal Reserve, governs the extension of credit by a member bank to an executive officer, director or principal shareholder (an Insider) of that bank. An insider who becomes indebted to the financial institution must, under most circumstances, report that indebtedness to the board of directors of the financial institution. In some instances, depending on the loan amount or total amount of loans outstanding, the insider must obtain proper approval by the board of directors before the loan is issued.
In addition to the credit risk and FDIC imposed penalties, many other intangible consequences can surface from Regulation O violations. Insider abuse can impair the public’s confidence in the institution and damage the financial institution’s reputation beyond the dollar amount of any credit loss.
If at any time you suspect there may be illicit insider activities occurring within your financial institution, a forensic accountant can help identify the issue, quantify any damages and provide recommendations to mitigate the risk of such activities in the future.
For more information on this topic, or to learn how Baker Tilly banking specialists can help, contact our team.