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GDPR Considerations for Community Banks

The May 25, 2018, compliance effective date of the EU’s General Data Protection Regulation (GDPR) is just weeks away, and many U.S.-based companies have at least by now taken stock of their EU customer base and operations, and developed a baseline set of compliance plans.  For many, that might only entail a data inventory and controls that would ensure that changes to the company’s business plan, advertising strategies, and physical footprint would be assessed for GDPR compliance in advance, just as with any other area of compliance.  However, for companies whose business relies upon the gathering and use of consumer data, the GDPR implementation process has been onerous.

In particular, as recent American Banker coverage has described, this compliance effort is hitting financial institutions of all sizes hard.  While the exact nature and magnitude of enforcement exposure is still unclear, U.S. banks should take a broad view of their overseas business – including where U.S. customers temporarily work or travel – in order to stay ahead of GDPR compliance issues.

For U.S.-based small businesses, including community banks, the conventional wisdom has focused on whether the institution solicits or services EU customers.  Unfortunately this approach may cause banks or other businesses to underestimate their potential exposure.

For purposes of the GDPR, compliance obligations for companies without a physical presence in the EU are generally only implicated if the company (1) offers goods and services in the EU or (2) monitors the behavior of EU customers (referred to affectionately as “data subjects” in the regulation).

Of particular concern for community banks is whether tourists, foreign work assignments, or overseas service members could cause the bank to become subject to GDPR obligations.

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Introducing BCLP and Barry Hester

Jonathan and I discuss two major deals for our us: the formation of Bryan Cave Leighton Paisner (BCLP) and the return or Barry Hester in this latest episode of The Bank Account.

Bryan Cave Leighton Paisner LLP is the result of the mergers of historically U.S.-based Bryan Cave LLP and historically U.K.-based Berwin Leighton Paisner LLP.  As a truly global firm with over 1,600 lawyers operating literally around the clock, we believe Bryan Cave Leighton Paisner is well positioned to serve clients around the globe.  Our blog is still available at BankBryanCave.com, but is also now available at BankBCLP.com.  We’ll figure out over time what our branding looks like.

the-bank-accountBarry Hester re-joins our financial institutions practice after serving for many years as an assistant general counsel for EverBank and TIAA FSB.  In this episode of The Bank Account, we talk with Barry about his experience with the “good guy” and “bad guy” banking compliance laws.  The “good guy” laws include the Servicemembers Civil Relief Act and the Military Lending Act, while the “bad guy” laws include the Bank Secrecy Act and Anti-Money Laundering laws.  As noted in the podcast, Barry has already been busy contributing good content for our blog, with a post last week about FinCEN’s new FAQ on the Customer Due Diligence rules.

As discussed previously, we are sponsoring two teams, one of lawyers and one of bankers, for the Atlanta Ragnar Trail Run on April 13th and 14th.  Sixteen of us will be taking turns running five mile legs at the Georgia International Horse Park over a 24-hour (or so) period.  Team BSA (or Bankers Speed Ahead) will generally consist of our friendly bankers, while Team AML (or Awkwardly Moving Lawyers) will consist of our compatriots from the firm.  I expect our next podcast will relay some interesting stories from the trails.

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FinCEN Provides Relief to CDD Obligations for Existing Customers

The Financial Crimes Enforcement Network (FinCEN) published long-awaited additional Frequently Asked Questions on April 3, 2018 (the “Guidance”) relating to its Customer Due Diligence (CDD) Rule, which FinCEN promulgated pursuant to the Bank Secrecy Act (the “CDD Rule”).  This comes at a time when most covered institutions are in the final stages of implementing plans to comply with the CDD Rule by its May 11, 2018 compliance applicability date.  FinCEN previously published technical amendments to the Rule on September 29, 2017 and an initial set of FAQs on July 19, 2016.  While such Guidance does not have the weight of authority of statute or regulation, it has traditionally helped to form the basis for examination and enforcement expectations.  Here we will focus on themes in the new Guidance relating to application of the rule to existing customers.

As a reminder, the CDD Rule was originally published on May 11, 2016 after years of public hearings and comment periods.  The rule sets forth CDD as a “fifth pillar” of a BSA/AML compliance program in addition to those established by the Bank Secrecy Act itself:  system of internal controls, the appointment of a responsible officer, training, and independent testing.  CDD entails upfront due diligence and ongoing monitoring, and this rule establishes the collection of Beneficial Ownership information as a required element of CDD for legal entity customers.  In releasing the CDD Rule, FinCEN emphasized that CDD is not technically a new requirement but has always been an expected part of a BSA/AML program that results in effective suspicious activity monitoring and risk mitigation.

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Media Mentions – February 24, 2012

With offices all over the world, Bryan Cave attorneys are often quoted in the news.  Recent Media Mentions of Financial Institutions Group attorneys include:

Andreassen, Hester in Bank Safety & Soundness Advisor

DC Associate Kristine Andreassen and Atlanta Associate Barry Hester were quoted extensively Feb. 20 by The Bank Safety & Soundness Advisor concerning recently revised guidance from the FDIC that, among other things, attempts to keep unsteady community banks from taking too much payment processor risk. The revised guidance doesn’t contain anything “shocking,” but it does signal that payment processing will be a higher exam priority, Andreassen said. Hester confirmed that payment processors are increasingly approaching banks with offers that are too good to be true. “There are more legitimate payment processing systems and methods out there — a lot of excellent opportunities,” but banks need to take the time to properly vet these partnerships, he told the publication.

Atkinson in Charlotte Observer

Charlotte Partner B.T. Atkinson was quoted Feb. 21 by The Charlotte Observer concerning the federal government’s desire to end the politically unpopular Troubled Asset Relief Program. The government cannot force banks to repay TARP funds early under the terms of the capital investments brokered at the height of the financial crisis. To extricate itself, the Treasury is considering selling its stakes to third parties or restructuring their terms. Atkinson said it is more likely that the government would sell its TARP stakes, possibly at auction. He said the Treasury could move forward as early as the third quarter.  Click here to read the full article.

Moeling in Atlanta Journal-Constitution

Atlanta Partner Walt Moeling was quoted February 19 in The Atlanta Journal-Constitution regarding the impact of the deteriorating economy on the small businesses and banks of Henry County, Ga.  Once among the nation’s fastest-growing counties, Henry is now the largest county in Georgia without a hometown bank.  All five locally owned banks failed during the economic downturn.

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Media Mentions – July 2, 2010

Recent media mentions of attorneys in Bryan Cave’s financial institutions practice include:

Atkinson in Virginian-Pilot
Charlotte Partner B.T. Atkinson was quoted June 7 by The Virginian-Pilot in Norfolk, Va., concerning private-equity firms that are investing in troubled banks. Hampton Road Bancshares, parent company of Hampton Road Bank and Shore Bank, recently announced that private equity firms will invest in the company. Click here to read the article.

Hester in American Banker
Atlanta Associate Barry Hester was quoted June 10 by American Banker on a controversial provision of the financial reform bill that would tighten capital restrictions on many banks, including those still participating in the government’s TARP bailout program. “It will immediately result in undercapitalization for a number of banks,” Hester said. “It would be like flipping the switch, where banks that are currently OK would suddenly need to raise more capital. It could be a disaster if it isn’t phased in to let people plan ahead.”

Klingler on thestreet.com, bailoutsleuth.com
Atlanta Associate Robert Klingler was quoted June 4 by thestreet.com regarding bank capital standards. Click here to read the article. He also was quoted that same day by bailoutsleuth.com on the Small Business Lending Fund, which is designed to inject $30 billion into small banks – defined as those with less than $10 billion in assets – with the idea that they will in turn lend money to small businesses.

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