Reporting SARs to the Board of Directors
This BSA video discusses the requirements for reporting SARs to the Board of Directors.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to focus on reporting SARs to the Board of Directors.
The rule says that financial institutions must notify the board of directors or a committee of the board that SARs have been filed. The rule permits full copies of SARs to be provided to the board, though you do not have to provide full copies. You could provide shorter copies, you could provide abbreviations. Now what would be the best practice, of course, is to provide only an abbreviation or a summary of SARs.
Now, that is a good practice, of course, from a compliance perspective. When I have taught seminars to directors who also sit on loan committees and make loan decisions for the bank, they have argued and said that, “Adam, we want to know if a customer is doing activity that could potentially be illegal. We need to have that information so that we can provide the best credit decision possible.”
Well, the problem with that is that sometimes when directors are provided with full information, they disclose that information when they're not supposed to. There is a confidentiality requirement for suspicious activity reports that basically says only those that need to know should have that information regarding a SAR. In fact, FinCEN provided guidance that discussed the increasing evidence of inappropriate SAR disclosure. And in that guidance, which is FIN-2012-A002, FinCEN reminded directors and their attorneys that SARs are confidential and should not be disclosed. Therefore, the best practice really does become not to provide directors with full copies of SARs but to provide them with summaries of the SARS - a very simple summary.
Now, what if a director or the director say that they do need full copies of SARs so that they can make informed decisions? And I've had, like I said before, I've had this question asked of me several times. Of course, the rules do say that SARs are permitted to be provided to the board, but I believe that that's not the best practice. I believe there is a better way to do it. And that better way is by forming a SAR Committee. Now some people criticize SAR committees, but I'm a huge proponent of them for a number of reasons, this being one of them: because what you can do with a SAR committee is to include your bank President in that SAR committee. So he would be a voting member of the SAR, but that also means that he or she, your bank president, would have the ability to know what SARs have been filed when a director is making a decision in a loan committee. In other words, your president is usually in loan committees with your board when they’re making loan decisions and that means somebody in the room knows a SAR is filed and that president could speak up at that time if they felt it was appropriate. Now, of course, they wouldn't have to disclose a SAR is filed. They could just tell the board we've uncovered some activity that could be problematic. We need to consider this in evaluating this one request. So I think that is the perfect solution and a better approach than providing full copies of SARs to the board.
That is our topic for today.