Alert March 27, 2012

FDIC Issues Financial Institution Letter Advising Bank Directors and Officers that Copying and Removing Confidential Financial Institution Records is Breach of their Fiduciary Duty to the Financial Institution and is an Unsafe and Unsound Banking Practice

The FDIC issued a Financial Institution Letter (“FIL-14-2012”) in which the FDIC states that it has observed, in a limited number of recent incidents, that directors and officers of troubled or failing financial institutions (“FIs”) have made copies of FI and supervisory records and removed them (for the personal use of the director or officer) from the FI’s premises “in anticipation of litigation or enforcement activity against them personally.” In FIL-14-2012, the FDIC conceded that FI directors and officers need access to FI records to perform their duties and to operate the FI, but “reminded” directors and officers of FIs that in fulfilling their fiduciary duty to the FI they serve, they must at all times act in the best interests of the FI and, as part of their fiduciary obligation, may not copy and remove confidential FI documents and other information “in pursuit of the personal interest of [the director or officer].”

In FIL-14-2012, the FDIC further cautioned FI directors and officers that in copying and removing FI and FI customer information, they may subject themselves to FDIC enforcement actions under Section 8 of the Federal Deposit Insurance Act for violations of statutory and regulatory requirements, such as:

(1) violations of the prohibition against disclosure of examination reports and supervisory correspondence;

(2) violations of prohibitions against disclosure of Suspicious Activity Reports;

(3) violations of the obligation to protect the privacy of and properly safeguard confidential customer information; and

(4) violations of federal laws restricting the exchange of confidential consumer information among affiliated and nonaffiliated entities.

The FDIC also stated in FIL-14-2012 that attorneys representing an FI are legally and ethically obligated “to advance the interests of the [FI] and the [FI] alone.” Moreover, the FDIC further stated that FI counsel “who advise copying and removal of records contrary to the interests of the [FI] may be engaging in violations of law, codes of professional conduct, as well as breaches of fiduciary duty.”

The Financial Services Alert will cover future developments concerning the issues raised, and the position taken, by the FDIC in FIL-14-2012.