Shearman & Sterling LLP | Financial Regulatory Developments Focus | <span ><font >US Federal Deposit Insurance Corporation Announces Modifications to its Statement of Policy Regarding Section 19 of the Federal Deposit Insurance Act</font ></span >
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  • US Federal Deposit Insurance Corporation Announces Modifications to its Statement of Policy Regarding Section 19 of the Federal Deposit Insurance Act
    08/20/2018

    The U.S. Federal Deposit Insurance Corporation issued modification to its Statement of Policy with respect to Section 19 of the Federal Deposit Insurance Act, which (among other things) prohibits persons with convictions for certain criminal offenses, or those who have entered into pretrial diversion or similar programs with respect to the same, from participating in the affairs of a FDIC-insured financial institution without prior approval of the FDIC.  This prohibition extends to individuals who are or would become institution-affiliated parties, individuals who directly or indirectly control or own an insured depository institution or individuals who participate directly or indirectly in the conduct of the affairs of an insured depository institution.  In order to obtain approval from the FDIC, the financial institution or, in certain instances, the affected individual, must file an application with the FDIC.  The modifications expand the de minimis exception, for which the FDIC’s consent is considered automatically granted without the filing of an application, to include, subject to certain additional requirements and limitations, issuance of insufficient funds checks of moderate aggregate value (less than $1,000); small dollar, simple theft (less than $500); isolated minor offenses committed by young adults (defined as 21 years of age or younger); and certain drug-related offenses so long as other de minimis criteria are met.  The modified Statement of Policy further provides that a FDIC-supervised financial institution may extend a conditional offer of employment to an individual, subject to completion of the relevant background checks, provided that the individual may not work or be employed by the institution until it is determined that the applicant in not barred under Section 19.  The modifications also make certain clarifying and technical corrections to the Statement of Policy.  The FDIC noted that these modifications are expected to result in fewer applications and reduced regulatory burden.

    View full text of the updated Statement of Policy.