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FDIC Enforcement Decisions and Orders
A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent was engaged in unsafe and unsound practices.
[.1] ManagementQualifications Specified
[.2] Board of DirectorsIncreased Participation in Bank Affairs Required
[.3] Compliance CommitteeEstablishment of Required
[.4] Cease and Desist OrdersImplementation of Compliance Monitoring Procedures
[.5] ConsultantsRetention Required
[.6] Bank OperationsTraining Program Required
[.7] Compliance PolicyImplementation Required
[.8] Consumer LawsCompliance Audit Required
[.9] AuditProgram Required
[.10] Consumer LawsCompliance Program, Minimum requirements
[.11] Progress ReportWritten Report Required
[.12] ShareholdersDisclosure of Cease and Desist Order Required
In the Matter of
First Bank of Northern Kentucky, Inc., Fort Mitchell, Kentucky
("Bank"), having been advised of its right to a NOTICE OF CHARGES
AND OF HEARING detailing the unsafe or unsound banking practices and
violations of law or regulation alleged to have been committed by the
Bank, and of its
right to a hearing on the charges under section 8(b) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1818(b), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated November 10, 2005, whereby, solely for the purpose of this proceeding and without admitting or denying the charges of unsafe or unsound banking practices and violations of law or regulation, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had violated laws or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:
ORDER TO CEASE AND DESIST
IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. §1813(u), successors, and assigns, cease and desist from the following unsafe or unsound banking practices and violations of law or regulations:
A. Operating with management whose policies and practices in the area of Consumer Compliance are detrimental to the Bank and jeopardize the safety of its deposits.
B. Operating with a board of directors which has failed to provide adequate supervision over, and direction to, the active management of the Bank in the area of Consumer Compliance.
C. Failing to develop and administer and effective compliance management system that ensures compliance with federal consumer protection laws, regulations, and policies ("Consumer Laws").
D. Violating Consumer Laws as set forth in the FDIC's Compliance Report of Examination of the Bank as of May 9, 2005 ("Compliance Report").
IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, successors, and assigns, take affirmative action as follows:
[.1] 1. The Bank shall have and retain qualified management.
(a) Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. Each member of management shall be provided appropriate written authority from the Bank's board of directors to implement the provisions of this ORDER.
(b) The qualifications of management shall be assessed on its ability to:
(i) comply with the requirements of this ORDER;
(ii) operate the Bank in a safe and sound manner;
(iii) comply with applicable laws and regulations; and
(iv) develop, implement and administer a satisfactory Compliance Management System.
(c) During the life of this ORDER, the Bank shall notify the Regional Director of the Chicago Regional Office of the FDIC ("Regional Director") in writing of any changes in any of the Bank's directors or senior executive officers. For purposes of this ORDER, "senior executive officer" is defined as in section 32 of the Act ("section 32"), 12 U.S.C. §1831(i), and section 303.101(b) of the FDIC Rules and Regulations, 12 C.F.R. §303.101(b), and includes any person identified by the FDIC, whether or not hired as an employee, with significant influence over, or who participates in, major policymaking decisions of the Bank.
(d) Prior to the addition of any individual to the board of directors or the employment of any individual as a senior executive officer, the Bank shall comply with the requirements of section 32 and Subpart F of Part 303 of the FDIC Rules and Regulations, 12 C.F.R. §§303.100303.104.
(e) Within 30 days from the effective date of this ORDER, the Bank shall have and retain a full-time Compliance Officer who possesses the requisite knowledge and experience to administer an effective Compliance Management System.
(i) If the Compliance Officer retained pursuant to this ORDER is to be added as a director or employed as a senior executive officer of the Bank, the Bank shall comply with the requirements of section 32 of the Act, 12 U.S.C. §1831i, and Subpart F of Part 303 of the FDIC Rules and Regulations, 12 C.F.R. §§ 303.100303.104, before the addition of the Compliance Officer to such position(s).
(ii) The responsibilities of the Compliance Officer shall include:
(A) Developing compliance policies and procedures, and conducting regular reviews to ensure that updates are accomplished as necessary;
(B) Administering a compliance training program and providing training in Consumer Laws to both Bank management and employees on a continuing basis; and
(C) Coordinating responses to consumer complaints.
[.2] 2. From the effective date of this ORDER, the board of directors shall increase its participation in the affairs of the Bank, assuming full responsibility for the approval of sound policies and objectives and for the supervision of all of the Bank's activities, consistent with the role and expertise commonly expected for directors of Banks of comparable size.
(a) Within 30 days from the effective date of this ORDER, the Bank's board of directors shall designate a committee ("Compliance Committee") comprised of at least 2 directors who are not active officers of the Bank and at least 1 member of senior management, including the Compliance Officer retained pursuant to this ORDER.
(b) The Bank's board of directors, in conjunction with the Compliance Committee, shall allocate resources to the compliance area that are:
(i) Commensurate with the level of complexity of the Bank's operations to ensure the establishment and implementation of an adequate Compliance Management System, including procedures ensuring the Bank's compliance with Consumer Laws; and
(ii) Sufficient to ensure the Bank's timely compliance with the provisions of this ORDER.
(c) The Bank's board of directors shall ensure that the Compliance Officer:
(i) has and retains sufficient authority and independence to implement policies related to Consumer Laws and to institute corrective action as needed. This authority shall include the ability to cross departmental lines, have access to all areas of the Bank's operations, and effectuate corrective action upon discovering deficiencies.
(ii) receives ongoing training, sufficient time, and adequate resources to effectively oversee, coordinate, and implement the Bank's Compliance Management System.
(d) The Bank's board of directors, in conjunction with the Compliance Committee, shall:
(i) Ensure that the duties and responsibilities of the Compliance Officer are clearly defined and provide for accessibility to both the board and senior management;
(ii) Require the Compliance Officer to provide monthly reports to the board or Compliance Committee;
(iii) Require the Compliance Officer to review and respond promptly to audit reports relating to all areas of the Bank's Compliance Management System; and
(iv) Require the Compliance Officer to prepare a schedule of requirements for Consumer Laws (such as the type and timing of disclosures), so that Bank employees will be informed of the requirements relating to their duties.
(e) Within 30 days from the effective date of this ORDER, the Bank's board of directors shall have in place a procedure that will provide for monitoring of the Bank's compliance with this ORDER.
(i) The procedure shall include, but not be limited to, meetings to be held no less frequently than monthly at which, at a minimum, the following areas shall be reviewed and approved: minutes of the Compliance Committee, Compliance Officer reports, Compliance Management Program audit reports, compliance program policies, and compliance with this ORDER. Board minutes shall document these reviews and approvals, including the names of any dissenting directors.
(ii) All progress reports and other written responses to this ORDER shall be reviewed and signed by each member of the board, and such reviews shall be recorded in the minutes of the applicable meeting of the board of directors. Such reports may
be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has released, in writing, the Bank from making additional reports.
(f) The board shall ensure proper follow-up and resolution to audit findings.
(g) The board shall ensure that the Bank's Home Mortgage Disclosure Act Loan Application Register is filed by March 1 of each respective year.
(h) The board shall provide appropriate oversight of established broker relationships to ensure compliance with Regulation X promulgated pursuant to the Real Estate Settlement Procedures Act.
[.3] 3. (a) The Compliance Committee shall establish and implement an effective Compliance Management System, as described in Financial Institution Letter 52-2003, "Compliance Examination Procedures," and the attachment thereto, "Overview of the Compliance Examination" (June 20, 2003) ("Compliance Management System Guidance").
(b) The Compliance Committee shall meet at least monthly to discuss the Bank's Compliance Management System, and shall maintain minutes of its meetings, which minutes shall be reviewed and approved by the Bank's board of directors at its monthly meetings.
(c) Establishment of the Compliance Committee in no way diminishes the responsibility of the entire board of directors for ensuring compliance with the provisions of this ORDER.
[.4] 4. Within 60 days from the effective date of this ORDER, the Bank shall ensure that effective compliance monitoring procedures, which shall be acceptable to the Regional Director as determined at subsequent examinations or visitations, are developed and incorporated into the normal activities of every department. At a minimum, monitoring procedures should include ongoing reviews of:
(a) Applicable departments;
(b) Disclosures and calculations for various loan and deposit products;
(c) Document filing and retention procedures;
(d) Marketing literature and advertising; and
(e) Internal compliance communication system that provides to Bank personnel appropriate updates resulting from revisions to Consumer Laws.
[.5] 5. (a) Within 30 days from the effective date of this ORDER, the Bank shall have and retain a qualified consultant with the requisite knowledge and experience to establish and administer an effective Compliance Management System. The consultant will be required to maintain reliable and accurate records as they relate to the services performed on behalf of the Bank and will submit written reports on their findings.
(b) Within 90 days from the effective date of this ORDER, and quarterly thereafter, the Bank must monitor the performance of the consultant to ensure committed goods and services are received.
[.6] 6. Within 60 days from the effective date of this ORDER, the Bank shall develop a training program, acceptable to the Regional Director as determined at subsequent examinations or visitations, related to Consumer Laws for all Bank personnel, including senior management and the directorate, commensurate with their individual job functions and duties.
[.7] 7. Within 60 days from the effective date of this ORDER, the Bank shall develop and implement a Compliance Policy, acceptable to the Regional Director as determined at subsequent examinations or visitations. At a minimum, this Policy shall:
(a) Require the adoption of a comprehensive compliance program, which will be reviewed and approved annually by the board; and
(b) Require the development of internal monitoring procedures to ensure that:
(i) The Bank's actual practices reflect the Compliance Policy;
(ii) All Consumer Laws are being followed; and
(iii) Reviews are conducted at the transactional level during the normal daily activities of employees in all operating units of the Bank.
[.8] 8. (a) Within 90 days from the effective date of this ORDER, and quarterly thereafter, the Bank shall conduct or shall cause an internal or external audit to be conducted to ensure compliance with Consumer Laws. Further, the audit will assess the Bank's Compliance Management Program in conjunction with the Compliance Management Program Guidelines, and at a minimum, shall:
(i) Define a comprehensive scope;
(ii) Identify the number of transactions sampled by category or product type;
(iii) Identify deficiencies;
(iv) Provide descriptions of or suggestions for corrective actions and time frames for correction; and
(v) Establish follow-up procedures to verify that corrective actions were implemented and effective.
(b) Audit findings, deficiencies, and recommendations must be documented in a written report and provided to the board of directors. Detailed written responses that specifically address the audit findings, deficiencies or recommendations must also be provided in a timely manner.
[.9] 9. Within 90 days from the effective date of this ORDER, the Bank shall formulate, adopt, and implement procedures, acceptable to the Regional Director as determined at subsequent examinations or visitations, to ensure that Bank responses to audit findings, as well as Bank corrective actions in response to audit findings, are documented and reported to the board of directors.
[.10] 10. Within 30 days from the effective date of this ORDER, the Bank shall eliminate or correct all violations of Consumer Laws identified on pages 13 through 17 in the Compliance Report dated May 9, 2005 and more specifically addressed in this ORDER. In addition, the Bank shall establish and implement procedures, acceptable to the Regional Director as determined at subsequent examinations or visitations, as part of its Compliance Policy to ensure future compliance with all Consumer Laws.
[.11] 11. Within 30 days from the end of the first calendar quarter following the effective date of this ORDER, and within 30 days after the end of each successive calendar quarter thereafter, the Bank shall furnish written progress reports to the Regional Director detailing the form and manner of any action taken to secure compliance with this ORDER and the results thereof.
[.12] 12. Following the effective date of this ORDER, the Bank shall send its shareholders a description of this ORDER: (a) in conjunction with the Bank's next shareholder communication; and (b) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, notice, or statement shall be sent to the FDIC Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429 for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice, or statement.
The effective date of this ORDER shall be ten calendar days after the date of its issuance by the FDIC.
The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated parties, successors, and assigns.
The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provision of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
Pursuant to delegated authority.
Dated this 17th day of November, 2005.
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