TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK
Various efforts are currently underway to review and revise, where necessary, the System's ethics and conflicts of interest program. Because of the special nature of the supervision function and the fact that examiners can be subject to criminal penalties for borrowing from banking organizations that they examine, the S&R departments of each Reserve Bank perform an essential role in the monitoring of conflicts of interest. The importance of appropriate management oversight cannot be overemphasized. Each supervision department, therefore, should continue its ongoing efforts and, where necessary, strengthen its internal procedures for obtaining required disclosures, educating employees about conflict of interest rules, and monitoring for potential conflicts to ensure compliance with existing programs.
Board staff are in the process of working with Reserve
Bank representatives to clarify and revise existing policies and
procedures with respect to identifying and preventing conflicts of
interest among S&R personnel, both at the Board and at the Reserve
Banks. Efforts also are underway to draft a standard financial
disclosure form to be used by S&R staff at all Reserve Banks.
Until the Board issues the new rules and the standard form, each
Reserve Bank supervision department must ensure that its current
program is effectively administered and meets the following broad
compliance objectives:
1) Examiners should not be scheduled to participate in
assignments from which they must be disqualified because
of an actual conflict or the appearance of a conflict of
interest. Examples include (a) a borrowing relationship
with an institution to be examined or an affiliate; or
(b) other relationships, such as employment of a spouse,
household member, or close relative at the institution to
be examined.
2) Examiners should not take out a loan or establish a line
of credit at any state member bank, bank holding company
or its nonbank subsidiaries while employed at the Federal
Reserve Bank, including such organizations in other
Reserve Bank Districts.
3) All non-clerical S&R employees should fill out and file
all required financial disclosure forms so that potential
conflicts are fully disclosed. Because of the special
rules applicable to them, examiners must disclose all
borrowing relationships with banking organizations,
including credit cards or credit lines with zero
balances.
4) Appropriate, trained staff should review the disclosure
forms so that conflict of interest issues are identified
and resolved in a timely manner. Reserve Banks should
consult with the Board's supervision and legal staffs
when issues arise. Consultation is essential to ensure
System consistency.
5) Restriction lists should be kept current using up-to-date
banking structure information as well as recent
disclosure forms.
1. Preemployment Screens: Examiner borrowing rules and
investment prohibitions should be reviewed thoroughly with
prospective employees during the interview process to screen
and resolve potential problems.
2. Financial Disclosure: A comprehensive financial disclosure
program, consisting of effective forms and instructions,
review and control procedures, and accountability, plays an
essential role in identifying and appropriately responding to
potential conflicts of interest.
In successful financial disclosure programs: (1) an effective
system exists to review financial disclosure forms in order to
identify potential conflicts of interest and policy
violations; (2) control procedures are in place to ensure
adequate and timely review of disclosure forms through
initialing by the reviewer or sign-off by an officer; (3)
current restriction lists are consistently checked before
examiners are assigned to an institution; and (4) officers and
employees are held accountable for program deficiencies.
3. Training and Employee Education: A formal training program
for employees, reviewers of disclosure forms, and schedulers
of examinations (and other sensitive work) contributes
significantly to a successful ethics program.
In effective training and education programs: (1) a statement
of responsibilities, with respect to conflict of interest
rules, and policy guidance that discusses borrowing rules in
a clear and concise manner, incorporating examples, is
distributed to and reviewed with employees at least on an
annual basis; (2) specific instructions that accompany
disclosure forms are clearly stated and emphasize the need for
a complete disclosure of information from employees; (3)
periodic memoranda remind personnel of their personal
responsibilities with respect to conflict of interest rules;
and (4) instructions for reviewers of disclosure forms
encourage them to communicate frequently with the Reserve
Bank's ethics officer.
Guidance that is provided in the form of a recitation of the
Board FRAM or legal citation, by itself, is not a very
effective means for communicating the rules. Rather, guidance
to employees should outline borrowing and conflict of interest
rules in simple, concise terms, and may illustrate rules by
providing examples. One Reserve Bank has compiled a list of
brief bullet points which highlight each rule and provides
specific examples for reference; another Bank requires a box
to be checked as each explanatory point is read by the
employee.
5. Commitment of Senior Officers: A demonstrated commitment to
a sound and well-managed program by senior Reserve Bank
officers ensures that policies and procedures are periodically
reviewed and updated, and that the program is effectively run
with tight controls. Moreover, incorporating a quality
assurance aspect in the program ensures conformity of the
program with ethics rules, policies, and procedures.
Any questions or suggestions regarding the maintenance of
a sound conflict of interest program may be directed to Cynthia
Rotruck at (202) 452-3633.
Director
|
||||||||||
