Risk Management Manual of Examination Policies - FDIC

REPORT OF EXAMINATION INSTRUCTIONS Section 16.1
PURPOSE
VIOLATIONS OF LAWS AND REGULATIONS
This page is used to communicate details regarding apparent violations (violations) of laws or regulations, as well as
contraventions of Statements of Policy. Include this schedule when any such violations or contraventions are cited.
GENERAL
Comments on the Violations of Laws and Regulations page may, but need not automatically, be carried forward in
summary form to the RMA or, if more significant, ECC page. The materiality of the violation, bank management’s
response to the violation, and the examiner's intentions regarding civil money penalties and/or enforcement actions
can help determine whether ECC page comments are appropriate.
Because of possible administrative or judicial review, all violations are considered "apparent" violations.
Generally, list violations in order of importance, with consideration given to the substance of the violation and its
severity.
FORMAT OF VIOLATION AND
CONTRAVENTION OF STATEMENT OF POLICY WRITE-UPS
Headings - A descriptive heading should precede each scheduled violation or group of violations.
Citation of Violation - When scheduling violations of Federal or State law, it is generally necessary to cite the
specific section or subsection of the regulation deemed to have been violated (for example, Section 328.2 or Section
329.1(e)). Conversely, any reference to a general regulation dealing with a particular subject is cited by part number
(for example, Part 329). Also describe the specific requirements of the section cited. This can be accomplished
either by directly quoting the section, or, if lengthy, by paraphrasing. Comments should be as precise as
circumstances warrant.
Description of Violation - Describe the specific activity(ies), transaction(s), or circumstances giving rise to the
apparent violation. For example, “The following loans are in apparent violation of this section because they were
extended without the prior approval of the full Board of Directors. Detailed descriptions and extensive remarks on
violations involving certain assets, such as adversely classified loans, may be unnecessary when other schedules are
referenced. Reference the appropriate Report page if any asset illegally held is subject to adverse classification or
Special Mention.
Management Comments and Corrective Action - Include management's comments and commitments, or lack
thereof. This should include both management’s explanation for why the violation occurred, and any commitments
for corrective action planned. Clearly indicate any promise of restitution by offending individuals.
Director Approval - To reflect Director responsibility and possible liability, it can be useful to include the names of
Directors who approved assets held in nonconformance with applicable State and Federal laws and regulations or
similar apparently illegal transactions. While this is not necessary in all violation write-ups, it is essential when they
may result in the imposition of civil money penalties. In such cases, show the date Director approval was granted,
and include the names of dissenting Directors. Follow this procedure even if approval consisted merely of ratifying
a group of loans identified only by numbers. Generally, also include Director approval information when the
apparent violation(s) involves insider transactions, whether or not civil money penalties may be recommended.
DSC Risk Management Manual of Examination Policies 16.1-15 Report of Examination Instructions (12-04)
Federal Deposit Insurance Corporation