The aim of this letter is to raise awareness among Member States, holding bank companies and savings and credit holding companies (all “secure financial institutions”) and Reserve Bank staff that insurance policies that provide compensation to directors and executives may include exclusionary provisions that potentially limit coverage and make affiliated institutions (IAP)1 of covered financial institutions responsible for excluded debts.2 This letter does not cover not to create new requirements for covered financial institutions or audit issues. insurance policies to their directors and managers. The sole purpose of this letter is to inform covered financial institutions of the risks associated with these exclusion clauses, as is the case with the Federal Deposit Insurance Corporation (FDIC) on this issue.3 The choice of coverage in a D-O policy should be based on an in-depth analysis of costs and benefits. The Federal Reserve is asking each member of the Board of Directors and each executive to understand the answers to the following questions regarding the coverage of an OD policy, including the review of renewals and changes to existing policies: in a monitoring letter, the Federal Reserve Board reminds member banks and banking companies of the compensation restrictions imposed by Section 18 (k) of the Federal Deposit Insurance Act. Crime Control Act of 1990 and related regulations of the Federal Deposit Insurance Corporation. The legislation aims to preserve the deterrent effects of administrative enforcement by ensuring that those subject to final enforcement are borne by the costs of judgments, fines and the resulting legal costs, and that the assets of financial institutions are protected. Recently, certain merger and acquisition claims filed with the Federal Reserve have included broad compensation clauses in the agreements between the parties to the proposed transactions. Some of these compensation clauses are intended to compensate executives, directors and employees of the target financial institute for judgments, fines, claims or comparisons that are civil, criminal or administrative and relate to “conduct prior to merger or takeover.” Some state-owned banks and holding companies have also adopted broadly formulated or entered into separate compensation provisions in their statutes covering the day-to-day activities of their own parties related to institutions1.1 Federal Reserve employees have found that many of the compensation provisions are inconsistent with federal bank law and federal banking laws. , as well as safe and robust banking practices. and advised candidates and supervised institutions on these shortcomings.  This ACH transaction bulletin is only for information purposes and does not serve as legal advice.
Readers should be advised on their obligations under nacha operating rules or applicable legal requirements. The FDIC rules define “prohibited compensation,” including any payment or payment agreement from a bank or holding bank to a party linked to an institution, with a view to paying or repaying that person for any liability or legal costs in an administrative proceeding initiated by the competent authority of the Bundesbank which results in an order or a final settlement condemning the party related to the institution as a civil fine. 2 Under FDIC rules, a bank or holding company may make an appropriate payment to acquire commercial insurance to cover certain costs incurred by the institution as part of a compensation agreement.