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Client Alert: Bank Regulatory & Legal Developments - Part II

A Client Alert Series For Changes In 2014

You should be aware of certain significant legal and regulatory developments affecting the banking industry, and prepare your institution to comply with new guidelines. In Part II of the “Bank Regulatory & Legal Developments” Client Alert Series, we will cover:

  1. Vendor Management
  2. Wire Transfer Agreements
  3. Minimum Wage Hike

Point Of Interest
Perform and document careful due diligence when selecting and maintaining a vendor.

Vendor Management

In the fourth quarter of 2013, two federal banking agencies updated their guidance for assessing and managing risks arising from a bank’s business relationships with its third party vendors, including data processors and other providers of services integral to a bank’s operations.  The guidance stresses, among other things, that banks should perform careful due diligence when selecting and maintaining a vendor, and should limit the ability of the vendor to subcontract services and assign the contract without due diligence and bank approval.  Banks also should ensure that vendor contracts:

Based on this revised guidance, banks should take a fresh look at their vendor management practices and contracts, including the heightened expectations for directors in that regard.

Point Of Interest
Perform and document careful due diligence when selecting and maintaining a vendor.

Wire Transfer Agreements

Wire transfer issues abound these days, particularly with respect to the adequacy of security procedures. In a recent development, insurance companies are relying on a case in California to potentially deny insurance coverage for losses resulting from a fraudulent or erroneous wire transfer.  In that case, the bank did not require its customers to execute a copy of the wire transfer agreement individually, but instead relied on its customers’ signatures on deposit cards to show consent to the wire transfer agreement.  In addition, the wire transfer agreement did not include appropriate security procedures, including call-back provisions. Because of these issues, among others, the court held that the bank was not entitled to coverage because it did not comply with the terms of its insurance policy.  Although the bank is currently appealing the decision, insurers will likely be amending their policies and excluding coverage for wire transfers made under improperly written wire transfer agreements.  Consequently, banks should not send a wire for a customer without entering into a written wire transfer agreement with the consumer. We recommend reviewing your wire transfer agreements to ensure that they contain appropriate security measures and comply with your insurance policies, regardless of the outcome of this particular case.

Point Of Interest
The full scope of the minimum wage hike will be established in the Fall of 2014.

Minimum Wage Hike

Will the President’s minimum wage hike for federal contractors apply to banks? Many banks are federal contractors because they are federal depositories, or because they are issuing or paying agents for savings bonds. The full scope of President Obama’s February 12, 2014 Executive Order, increasing the minimum wage to $10.10, will not be known for many months.  The Department of Labor must issue regulations by October 1, 2014, and it is under those regulations that the full scope of the Executive Order will be established.  The increase will apply to contracts, contract-like instruments and solicitations entered into on or after January 1, 2015.

Stay tuned...

Point Of Interest
We are assisting many clients to ensure that their vendor and customer agreements and compensation practices comport with applicable legal and regulatory guidance.


As with any new guidelines, implementation of the required changes and thorough planning for their impact will take time.  We urge you to begin the process of understanding how these changes will impact your organization.


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