On February 20, 2025, the Office of the Comptroller of the Currency (“OCC”) announced that they had entered into a formal agreement with Patriot Bank, National Association (“Patriot Bank”), following a comprehensive examination that identified several regulatory deficiencies and unsafe banking practices.

Key Takeaways

  • OCC Agreement: Patriot Bank has entered into a formal agreement with the OCC after an examination identified regulatory deficiencies, marking a critical moment for the bank to realign with federal standards.
  • Regulatory Focus: The agreement emphasizes strategic and capital planning, requiring the bank to develop comprehensive plans to strengthen financial oversight and risk management.
  • BSA/AML Compliance: Enhancements in Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) compliance are mandated, including action plans for customer due diligence and monitoring of third-party risks.
  • Increased Scrutiny: The enforcement action reflects a broader trend of heightened regulatory scrutiny across the financial sector, cautioning banks to proactively strengthen compliance frameworks and governance.

Regulatory Findings and Areas of Concern

The OCC’s examination of Patriot Bank highlighted several areas where the bank did not meet regulatory expectations. Key concerns included strategic and capital planning, BSA/AML risk management, oversight of payment activities, credit administration, and concentration risk management. These findings point to critical vulnerabilities within the bank’s operational framework that, if left unaddressed, could compromise its stability and integrity.

Patriot Bank has agreed to the following measures as part of its compliance with the OCC:

  • Establish a compliance committee with at least three members to ensure adherence to the OCC agreement.
  • Submit an initial report detailing progress on corrective actions and goals within 30 days, followed by quarterly updates.
  • Achieve and maintain a common equity tier 1 capital ratio of at least 10% by February 25, 2025.
  • Submit a written strategic plan outlining objectives related to risk profile, earnings performance, growth, and operational development.

Strategic and Capital Planning

A central focus of the OCC agreement is strategic and capital planning. The examination revealed that Patriot Bank’s existing frameworks in these areas were inadequate for managing long-term risks and ensuring financial resilience. As part of the agreement, the bank is required to develop and submit comprehensive strategic and capital plans. These plans must detail approaches to strengthening financial oversight, improving risk management, and ensuring sustainable growth. A compliance committee will oversee adherence to the agreement, ensuring that the bank’s strategic objectives align with regulatory expectations.

Enhancing BSA/AML Compliance

BSA/AML compliance emerged as a significant concern in the OCC’s findings. To address these issues, the agreement mandates that Patriot Bank develop a detailed action plan focusing on customer due diligence, suspicious activity monitoring, and third-party risk oversight. Key components include:

  • BSA/AML Action Plan: A comprehensive plan outlining remedial actions to achieve compliance with BSA regulations.
  • Customer Identification Program (“CIP”): An enhanced CIP for reloadable prepaid card accounts to ensure appropriate collection and analysis of customer information.
  • Program Manager Due Diligence: A strategy to manage BSA/AML risks associated with third-party prepaid card program managers, ensuring compliance with licensing requirements.
  • Suspicious Activity Review Program: A program to ensure timely identification and reporting of suspicious activities, particularly fraud-related activities associated with prepaid cards.

These measures aim to fortify the bank’s defenses against money laundering and other illicit financial activities, ensuring compliance with federal regulations.

Risk Management and Oversight

The agreement requires the bank to establish a robust risk management framework for new products and services. This includes developing a model risk management program to effectively oversee third-party models. The focus is on ensuring that all new offerings are thoroughly assessed for potential risks and that appropriate mitigation strategies are in place. Additionally, the bank must enhance its oversight of payment activities, credit administration, and concentration risk management. By strengthening these areas, Patriot Bank aims to mitigate potential risks associated with its loan portfolio and payment operations.

Prepaid Card Program Provisions

A notable aspect of the agreement is the inclusion of specific provisions related to the bank’s prepaid card programs. The OCC’s requirements highlight the need for thorough due diligence and monitoring of program managers. The agreement stipulates that program managers must register with the Financial Crimes Enforcement Network, if applicable, ensuring compliance with state and local licensing requirements. This provision underscores the importance of maintaining oversight and control over third-party arrangements, particularly in scenarios where the bank may not have primary oversight of prepaid access programs.

Board Accountability and Governance

The bank’s board of directors is held accountable for ensuring compliance with the agreement. The board must implement corrective actions and maintain effective governance and oversight to address the deficiencies identified by the OCC. This accountability framework is designed to ensure that the bank’s leadership is actively engaged in overseeing the implementation of the agreement and driving the necessary changes to improve operational integrity.

Implications for the Financial Sector

The OCC’s enforcement action against Patriot Bank highlights a broader trend of heightened regulatory scrutiny on financial institutions. This underscores the critical importance of robust governance, risk management, and compliance frameworks, particularly in areas like money laundering regulations. Banks of all sizes are urged to proactively strengthen their compliance measures, invest in advanced monitoring technologies, and conduct thorough due diligence and ongoing monitoring of third-party partners. Effective allocation of resources is essential to meet these evolving regulatory demands and maintain a strong reputation within the financial sector.

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