Insider Activities

OCC Evaluation of Insider Activities

OCC examiners will focus on the adequacy of the bank’s policies governing insider activities and the processes for monitoring compliance with these policies and applicable law. Examiners will determine whether the bank’s internal controls and management information systems are adequate and protect the bank against insider abuse. In addition, examiners should assess the cause of any deficiencies and request appropriate corrective action from management and the board.

Examiners will complete, when appropriate, community or large bank management core assessment procedures, located respectively in the "Community Bank Supervision" and "Large Bank Supervision" booklets of the Comptroller’s Handbook, during the course of a bank’s supervisory cycle. Core assessment standards are the minimum procedures that must be performed to reach conclusions about the condition of each bank. These procedures are conducted through either the on-site examination process or through other supervisory activities, such as ongoing monitoring and director and management meetings.

Examiners should supplement, as necessary, the core assessment procedures with the insider activities procedures in this booklet. The extent to which an examiner uses all or some of these supplemental procedures should reflect the bank’s history of insider violations, if there are indications of significant changes in insiders or insider activity, if the bank’s internal policies and risk management system show signs of inadequacy, and if the management team is inexperienced or its background is otherwise questionable.

In reviewing payments to insiders for goods or services (including fees the bank pays to insiders, payments by the bank’s customers to insiders for work on the bank’s behalf as well as third party loan proceeds used to purchase goods or services from insiders), examiners should not establish pricing criteria. However, they should be alert to situations when costs of such goods and services are not in accord with market rates, are arbitrarily inflated, are inflated because of inefficiencies, or exceed the cost of acquiring the same services elsewhere. The board and management should have systems and controls in place to prevent inappropriate or unreasonable fees or other payments to insiders.

Examiners should thoroughly discuss examination findings and inappropriate insider transactions with bank management and the board of directors. Bank management should correct violations of insider requirements immediately. Whenever a violation occurs, and particularly whenever a violation continues from one examination to the next, it may indicate poor management and inadequate board oversight. The examiner should always clearly communicate the findings of any violations, the need for corrective action, and the time frame for such action in the "Matters Requiring Attention" and "Violations" sections of the report of examination. Further, the examiner should decide whether enforcement action against the bank and the persons who approved or benefited from the transactions is warranted.

For additional information and guidance regarding potential insider loan abuse, examiners may refer to the FFIEC White Paper, "The Detection, Investigation, and Prevention of Insider Loan Fraud," May 2003,available at www.ffiec.gov/exam/whitepapers.htm.

The detailed procedures in this booklet are designed to help examiners reach a conclusion about a bank’s insider activities. This conclusion should reflect insider activity findings from several targeted reviews throughout the bank or from a centralized insider activity evaluation.

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