BSA-AML Examiner School Case Study eBook

From: EIC@Statebankingagency.org Sent: February 16, 2024 To: BSAexamstaff@Statebankingagency.org Subject: TS&J Bank Examination

BSA/AML Team,

I hope you had a chance to read the visitation memo.

I know this is the first time we have seen this type of program (BaaS) in our State, so I have talked to the scheduler and instead of three days for the BSA/AML examination he has extended it to five days for the examination, hopefully this will allow ample time to complete your review of the area. Please let the scheduler know if more time is needed. Also, I just finished our pre-examination call with TS&J Bank. President Todd Tallon, who brought up some important information regarding the upcoming BSA/AML examination. In June 2023 the bank hired a new BSA Officer Ruby Rose. They also just hired a BSA Assistant, Nellie Newark. BSA Officer Rose has prior FinTech experience and heads up the BaaS program and BSA Assistant Newark does some work on the community bank side for BSA. He also stated the Fed just completed a visitation of the program at the end of 2023, and there were a few concerns about the program, but the bank is on top of it and there shouldn’t be any concerns. He went on to say that in 2022 the bank hired a consulting group to help set up the program. The Board spend over $6 million dollars on the statements of work (SOW), and in fact they had seven SOWs completed to help set up the BaaS program. He reiterated that the new program would generate some good fee income for the bank and that things were in order. Side notes/History after my discussion with President Tallon: President did not seem concerned with the visitation findings. The visitation did not do an in-depth review of the BaaS program for BSA/AML. CEO Love’s great-great grandfather ran the bank, and now she is the owner. She is known for having a higher risk appetite. The bank lost a lot of money in 2021 due to a loan fraud case. The bank took an investment statement as collateral, and the investment statement was fraudulent, and the bank lost $2.1 million, and ROAA was less than stellar. CEO Love had mentioned she need to find a way to make some additional income. Examiners have also found that in the past she has delayed the correction of the deficiencies, identified by both regulators and external auditors. She will commit to remediating items however with no timeline. The Board has one strong member Kathy Karton who seems engaged at prior Board meetings, however we do not know the extent the Board members are apprised of the new BaaS activity or concern with the new activity. Beware as examiners have discussions with management, they should always have another examiner present.

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