Pub. 5 2010-2011 Issue 4

November/December 2010 17 Extraordinary Service for Extraordinary Members. Institutions should spend the time to develop sound policies and procedures and consult with their compliance and legal professionals before presenting the policies and procedures to their boards of directors for approval. section applies to all insured financial institutions, bank holding companies, and savings and loan holding companies and prohibits the employment of any person “. . . who has been convicted of any criminal offense involving dishonesty or a breach of trust or money laundering, or has agreed to enter into a pretrial diversion or similar program in connec- tion with a prosecution for such offense.” The most obvious “appropriate action” is to terminate the employment of any employee whose background falls within the Section 19 pro- hibition. The fingerprinting process will provide the criminal history. Experience has shown that while a pretrial diver- sion process might wipe the conviction off of state or local records, the FBI fingerprint records will reveal the conviction. Therefore, if the employee entered a diversion program for any of the covered acts, compliance with Section 19 requires the employee be terminated. While the rule contemplates a process to obtain approvals in exception to this requirement, it is not used very often and raises other issues. Provide for corrective action for employees who fail to comply with registration requirements or the institution’s policies and procedures. If the institution decides to submit registrations and renewals itself, the need for a specific corrective action process is somewhat diminished. The more likely scenario to arise is one in which the employee fails to supply information. The rules are somewhat ambiguous with respect to the action tobe taken in this instance: corrective action includes “. . . prohibiting such employees from acting as mortgage loan originators or other appropriate disciplinary action.” It is not clear whether the prohibition is required or simply permitted if other disciplinary action is taken. In light of the overall purpose of the S.A.F.E. Act and rules, and absent further clarification, it is likely that the prohibition is required. Of course, if an employee cannot serve as a mortgage loan originator, it is likely that termination is the only alternative. Review existing employment policies for possi- ble modification. The S.A.F.E. Act does not specifically require review and modification of employment policies; however, in light of the policy implications discussed above, employee relations issues are very likely to occur. Institutions will be well served by reviewing existing poli- cies in anticipation of administering information as part of the registration process. As part of that review, an institution might examine how its current policies would address the following scenarios: For more information, contact Dan Stinnett or Jeff Makovicka at Husch Blackwell LLP at (816) 983-8291 / (402) 964-5168 or dan.stinnett@huschblackwell.com / jeff.makovicka@ huschblackwell.com . Prior to joining Husch Blackwell LLP, Stinnett served as vice president, secretary, and general counsel for an $18 billion publicly traded bank holding company and its banking and non-banking subsidiaries. Stinnett was a founding member and former chairman of the American Bankers Association’s General Counsel Group. • The criminal history of an employee does not reveal any crimes involving dishonesty but the history reveals other crimes the company finds objectionable. • A long-term, valuable employee refuses to be fingerprinted or cooperate in the process. • Mortgage loan employees object to the fact that only they get fingerprinted and suggest that all employees should have criminal background checks. • The son of a director fails to accurately answer the ques- tionnaire but the company decides to keep him employed in another capacity. Another employee who may or may not be part of a protected class commits a similar failure. What is the appropriate response and what response is supported by existing policy or applicable laws? Whilemany possible scenarios should be contemplated in preparation for the new rules, the process involving criminal background checks is most likely to create more problematic employment issues than others. Employment issues aremore easily administered when a sound employment policy is in place. Institutions should review their current employment policies in light of the new rules and examine the need to modify their existing employment application forms and process to accommodate the new requirements. These are only a few of the policy and procedure implica- tions brought about by the rules. Institutions covered by the rules alsowill have to establishmandatory training ofmortgage loan originators; provide for annual independent compliance testing; establish standards for the proper use of the unique identifier; and require any third parties engaged by the institu- tion to comply with the requirements under the S.A.F.E. Act. Those in the financial services industry know that the “devil is in the detail.” S.A.F.E. Act compliance is a perfect example. Institutions should spend the time to develop sound policies and procedures and consult with their compliance and legal professionals before presenting the policies and procedures to their boards of directors for approval. Z