Banking Law and Bank Regulation Law

What is Banking Law?

Banking law covers the many state and federal regulations governing financial institutions. Attorneys who practice in this area of the law handle everything from customer disputes and complaints against a bank, to complex litigation between domestic and foreign institutions, their investors, the government, and other parties. However, most banking law attorneys are hired to provide advice concerning regulatory compliance. Banks may choose to maintain in-house counsel for this purpose, or to seek assistance from an independent law firm.

Given the vast number of regulations with which banks must comply, it is not surprising that their officers and directors seek legal counsel before making important decisions. The Dodd-Frank Act, a banking reform measure passed by the federal government in 2010, alone contains more than 1,500 separate provisions, including nearly 400 rule mandates. Depending on where they were chartered and how they operate, banking institutions may be regulated by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve System ("the Fed"), the Office of the Comptroller of the Currency (OCC), as well as state regulatory agencies.

Regulatory Compliance

In the current regulatory environment, banks have no choice but to make compliance a priority. This can involve an expensive and labor-intensive process that will affect everyone within the organization. First, the applicable rules and regulations must be identified and ranked in order of the risk associated with noncompliance. This evaluation by itself will often require input from an attorney familiar with the bank's operations. The next step will be to design and implement a compliance plan.

An effective compliance plan must be comprehensive, and here too the bank will benefit from the advice of counsel. The new efforts must be integrated with existing compliance systems to produce a complete, streamlined approach. All aspects of the bank's compliance activities should be subject to monitoring and oversight by management, with procedures in place to alert the appropriate personnel when the bank is in danger of violating a particular regulatory provision. That way, the bank can act proactively to remedy a concern before it becomes a true liability.

Staff members must also be educated on regulations pertaining to their duties, and kept abreast of changes in the law. There is a conception that banking law attorneys spend all of their time litigating, but this is untrue. Many practitioners are employed to conduct trainings and to act as a resource for banking professionals concerned with compliance issues. Considering the severe consequences of non-compliance, managers should consider a regulatory awareness program to be money well spent.

Defending Enforcement Actions

Of course, if a bank is already the subject of a regulatory investigation or enforcement action, the objective changes. Now the goal is to defend against inaccurate allegations and to protect individuals within the organization who have been singled out. There are many examples of overzealous regulators abusing their authority to the detriment of innocent directors, officers, and employees. Imprudent enforcement actions can also harm a bank's reputation and disrupt day-to-day operations.

If non-compliance has occurred, regulators have the power to impose strong sanctions on the bank, including termination of deposit insurance, issuance of "cease and desist" orders, and imposition of civil fines. Monetary penalties can also be issued to individuals within the organization. In extreme cases, individuals may even be targeted for criminal prosecution. In addition to taking immediate remedial action with respect to the non-compliance issue, banks should consult with legal counsel about the possibility of settling the enforcement action informally through direct negotiations with the regulators.

Assistance with Transactional Matters

Banking law also deals with the various transactions that arise as a financial institution goes about serving its customers and growing its business. Legal documents may need to be drafted to address individual accounts, such as a workout agreement for a customer who wants to avoid the repercussions of default. On a larger scale, a bank may need to develop standardized customer agreements in conjunction with new products or lending programs. Transactional matters can also involve the establishment of a de novo charter, the sale or purchase of a branch, or the creation of a new holding company.

In each instance, the bank must take steps to avoid conflicts with relevant consumer protection laws and industry regulations. For example, customer agreements for deposit accounts must comply with federal legislation such as the Truth in Savings Act (TISA), which requires the disclosure of certain interest and fee information, and the Expedited Funds Availability Act (EFAA), which regulates how long a bank can hold funds from a deposited check. Because banking laws change frequently, the assistance of an attorney in these matters is highly recommended.

Selecting a Banking Law Attorney

If your institution is looking to avoid regulatory action and the cost associated with it, you need experienced legal counsel. Many law firms have retired banking executives and government regulators on staff, providing valuable real-world experience. Contact a banking law attorney to learn more.


Banking Law Articles

  • SEC Adopts New Rules to Enhance Regulation of Private Fund Advisers
    New SEC rules will increase the rules that private fund advisers must follow. Going forward, private fund advisers must provide quarterly statements to investors and an annual financial statement audit of each private fund it advises.
  • SEC Approves Proposed Amendments to Its Customer Protection Rule
    The Securities and Exchange Commission is proposing amendments to its customer protection rule, InvestmentNews reports.
  • SEC Approves Amendments to Bolster Money Market Industry
    The Securities and Exchange Commission has adopted amendments to certain rules governing the money market industry, according to InvestmentNews.
  • Report Finds Sharp Increase in Investment Fraud Cases in 2022
    A new study examines the rise in investment fraud cases and the methods being used to deceive victims, InvestmentNews reports.
  • OFAC Enforcement in 2023: Calculating Civil Penalties
    The Office of Foreign Assets Control (OFAC) has broad enforcement authority under federal law to protect national security. To hold financial institutions, businesses, and individuals accountable for economic sanctions programs violations (such as financial transactions with specially designated nationals(SDN) list and blocked persons list, or those on the sanctions lists) and other statutory and regulatory offenses, OFAC has the power to impose various penalties under its Economic Sanctions Enforcement Guidelines (the “Enforcement Guidelines”). 
  • Choosing a SEC Defense Lawyer: Three Considerations
    You are in shock. You just opened an overnight envelope and discovered that you've received a subpoena from the Securities and Exchange Commission (SEC) requesting documents and requiring you to appear before the SEC for sworn testimony. After the initial panic subsides (a bit), you hit the Internet to search for a SEC defense lawyer to represent you. But, how do you choose amongst the many SEC defense attorneys out there? How do you know who to entrust with such a serious process and so much at stake, including potential fines and reputational damage?
  • 8 Famous U.S. Money-Laundering Cases in 50 Years
    Money laundering is the movement of illicit cash or cash equivalents into, out of, or through U.S. businesses or financial institutions. An example is when unlawfully obtained money is routed through multiple banks and businesses to conceal the original source of those funds.
  • FINRA Notice Warns Firms of Fraudulent Transfers
    The Financial Industry Regulatory Authority issued an alert to member firms regarding fraudulent transfers of customer assets.
  • It Is Now Harder for Brokers to Expunge Records
    The Securities and Exchange Commission (SEC) has approved a proposal that would make it more difficult for brokers to expunge customer disputes from their records, reports Investment News.
  • FINRA Plans at Least 1,000 Reg B1 Exams by End of 2023
    An executive with the Financial Industry Regulatory Authority provided an update on the authority’s plans for this year’s Regulation Best Interest exams, reports Financial Advisor.
  • All Banking and Finance Law Articles

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    When starting up a business, one thing virtually every business owner runs into is a need for funding. There are a few ways one can acquire these funds, like dipping into personal savings, taking out bank loans, or through traditional stock sales. But, for a lot of money fast, one approach that is increasingly popular in the Internet age is venture capital. But what is it and how does it work?

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    Bitcoin is a form of electronic currency that functions without being backed by any governmental authority. Bitcoin is often called a "cryptocurrency" because it is decentralized and uses a complicated system of cryptography to prevent double-spending. This form of currency has become a matter of great public interest as authorities debate whether it is legal and, if so, how they can regulate its use in illegal transactions and monitor it for tax purposes.

  • What is a Ponzi Scheme

    After the recent economic downturn, the news was filled with stories about various Ponzi schemes. Bernie Madoff became notorious for defrauding millions of dollars from high-profile investors through such a scheme. So what is a Ponzi scheme and why is it illegal?

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