FALL 2024 MEET YOUR CHAIRMAN TRAVIS G. DELAPLAIN, CPA, FNB BANK PRESIDENT’S MESSAGE West Virginia’s Banking Culture is a Competitive Advantage
Luke Thomas joins our corporate practice in Morgantown. © 2024 BAILEY & GLASSER, LLP | ATTORNEY ADVERTISING | BAILEYGLASSER.COM Contact Luke at: 304.594.0087 lthomas@baileyglasser.com Partner Luke Thomas has over 15 years of private practice experience handling transactional and litigation matters across numerous industries, such as banks and private equity funds, international manufacturers, government contracts, construction, health care, real estate development, commercial and residential landlords, natural resources and energy, trucking, software development, high-net-worth family-owned businesses, and everything in between.
CHARLESTON, WV • MARTINSBURG, WV • MORGANTOWN, WV • PARKERSBURG, WV • SOUTHPOINTE, PA • WINCHESTER, VA Banks, retailers, finance companies, and other businesses offering financial services to consumers face the ever-present threat of expensive and potentially ruinous litigation. Lawsuits, based on federal and state laws prohibiting “predatory lending,” “unfair debt collection,” and “deceptive and unfair” practices, strike at the heart of marketing, sales, privacy, and debt collection practices. At Bowles Rice, our Financial Services Litigation team has experience successfully defending clients, big and small, against lending-related lawsuits and class action litigation brought by consumers and regulators. Our lawyers have experience dealing directly with federal and state regulators on behalf of our banking and lending clients. For more information, contact our firm’s Financial Services Litigation team leader Zack Rosencrance at (304) 347-1161. Financial Services Litigation bowlesrice.com Responsible Attorney: Marc Monteleone 600 Quarrier Street • Charleston, WV 25301
CONTENTS ©2024 The West Virginia Bankers Association | The newsLINK Group LLC. All rights reserved. West Virginia Banker is published four times each year by The newsLINK Group LLC for the West Virginia Bankers Association and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the West Virginia Bankers Association, its board of directors or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. West Virginia Banker is a collective work, and as such, some articles are submitted by authors who are independent of the West Virginia Bankers Association. While West Virginia Banker encourages a first-print policy, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at (855) 747-4003. 5 PRESIDENT’S MESSAGE West Virginia’s Banking Culture is a Competitive Advantage By Mark Mangano, WVBankers President & CEO 6 Meet Your Chairman Travis G. Delaplain, CPA, FNB Bank 10 Thank You to Our Sponsors 130th WVBankers Annual Convention 12 Consumer Compliance Trends By Kelly Shafer, CPA, Suttle & Stalnaker 14 Utilizing the Corporate Fiduciary By Elisabeth A. Slater, JD, CTFA, Executive Vice President and Wheeling Market Fiduciary Director, Security National Trust Company 16 Amid the Hype, Is AI Right for Your Bank? By Milton Bartley, Co-Founder, President & CEO, ImageQuest 18 The End of Chevron Deference and Its Impact on the Banking Industry By Amy J. Tawney, Partner, and Jessica P. Tarantine, Associate, Bowles Rice LLP 22 Audit Stress? Lessen Annual Audit Anxiety with a 3(16) Fiduciary By John Schafer, VP, National Leader, Financial Institutions Channel, Pentegra 24 Be Proactive and Limit Asset Misappropriation Schemes By Annie Cortez, Managing Consultant, and Macie Latham, Lead Consultant, Forvis Mazars 26 Words of Wisdom — Investing for the Next Rate Cycle By Dale Sheller, Associate Partner, Director of Financial Strategies Group, The Baker Group 6 18 Cover Photo: Fall 2024 Chairman Cover Photo and Convention Photography provided by Erin Hurst, Erin Hurst Photography Lewisburg, WV (www.erinhurstphotography.com). 4 West Virginia Banker
The banking franchise model is under relentless assault from multiple directions. Banks face a regulatory tsunami at the federal level, initiatives to direct and restrict banks at the state level, and competition from untaxed and unregulated competitors. Meeting these challenges as an individual bank is a Herculean task at the very least. Banks in West Virginia have, for decades, shown remarkable resilience in facing constant and sometimes rapid changes to the banking environment. A critical factor in achieving that resilience is the banking culture in the state. Bankers, by nature, tend to blend fierce competitive instincts with fundamental desires to build communities, seek cooperation, achieve fairness and help their neighbors and colleagues. This blend is especially prevalent in the West Virginia banking community. Perhaps it is an extension of the kindness and consideration that West Virginians generally display. West Virginia bankers have long promoted competition while working cooperatively to ensure that all West Virginians have access to quality banking services, improve communities, advocate for sensible and moderate regulation, promote fairness in financial services, educate bankers, share best practices for operations and compliance, and adapt to change at an accelerated pace. We see evidence that this culture of competition and collegiality continues to manifest itself. Attendance at live industry events such as the association convention and legislative day has substantially increased each year since we emerged from the pandemic isolation. We see bankers volunteering to work cooperatively to help regulators in crafting state rules, making personal contributions to WVBankPAC, guiding advocacy to support and protect the industry, and contributing wisdom to help provide meaningful and efficient banker education opportunities. Each bank in West Virginia is stronger as a result of contributing to the collective industry health. The Association team is proud to be part of our very special banking culture and is committed to finding innovative ways to help sustain its positive impacts on our industry, individual banks, bankers and the state of West Virginia. PRESIDENT’S MESSAGE MARK MANGANO WVBankers President & CEO West Virginia’s Banking Culture is a Competitive Advantage 5 West Virginia Banker
Meet Your Chairman TRAVIS G. DELAPLAIN, CPA FNB Bank The West Virginia Banker’s Association is proud to introduce the 2024-2025 WVBankers chairman, Travis G. Delaplain. Travis is currently the President and CEO of FNB Bank. With years of thoughtful leadership, a steady demeanor and extensive banking experience, Travis is perfectly suited to lead the Association forward this year. We recently had the opportunity to sit down with Travis and get to know more about him, his goals as chairman and his thoughts on the industry. The following are excerpts from our conversation. How did your banking career start? In 2011, I was an audit manager for Arnett & Foster in Charleston, West Virginia. I had been with the company for seven years and specialized in performing audits for hospitals, community banks and employee benefit plans. FNB Bank, a community bank headquartered in Romney, was looking for a new CFO. They reached out to me and asked if I was interested in the position. I interviewed and accepted the position. In short, my move into banking can be attributed to being in the right place at the right time. Are there any individuals who had a major impact on your career? The first that comes to mind is Mrs. Brenda Haines, my high school accounting teacher. She challenged me to learn accounting in a way that ultimately led me to get a degree in accounting from Fairmont State University (FSU). The breathtaking view from the front porch of the Delaplain family home. 6 West Virginia Banker
The second is Glenn A. Harman, CPA, my college accounting professor who employed me in his accounting office while enrolled at FSU. He instilled a great sense of professional work ethic in me. Last, but not least, the leadership at Arnett & Foster (now Baker Tilly) gave me my first career opportunity where I found great success and led me to where I am today. What is the best professional advice you have received? “This too shall pass.” These four words are so important. People have the tendency to have an inflated reality when things are good. When things are bad, they seem to get bogged down. Living in the peaks and valleys is precarious at best and, most of the time, situations are exaggerated in our own mind. It’s wise to remember that this too shall pass — keep a level head, be the calming voice in the room and stay the course. What is your favorite memory or experience from your career? While still relatively new in my P/CEO role at FNB Bank, I was selected to serve on the Community Bankers Council of the ABA. This opportunity allowed me to deepen my industry knowledge through interactions with peers from around the country. It also provided deeper insights into the legislative processes in D.C. What advice would you give emerging leaders in the banking industry? I encourage patience and understanding because everything cannot be given at once, and working for something creates a deeper level of appreciation. However, I also follow that up with, if an opportunity presents itself, do not let yourself get in the way. Pursue all opportunities presented that may lead you to your professional goals, even when you may have some self-doubt. In short, be patient with your expectations, but also pursue everything that is put in front of you. Success will follow. Please tell us about your family, interests and hobbies. I have been married to my beautiful wife, Amy, for 17 years. We both love everything that West Virginia has to offer and decided long ago that we wanted to work and live here. When I took the CFO position with FNB Bank, we moved home to the Delaplain family farm. We are surrounded by mountains, 7 West Virginia Banker
fields and forests and thoroughly enjoy country living. We have two children: our son, Deacon, who is 10 — many in the Association know him because of his convention attendance and cornhole prowess — and our daughter, Elliott, who is 6 and an absolute delight. My family enjoys travel, the beach, camping, board games, youth sports, and Mountaineer football and basketball. Personally, I am an exercise enthusiast. I have completed Spartan races and many charity runs. I also like to read. I just finished “The Boys in the Boat” and highly recommend it. Please tell us about your involvement with the community and charitable organizations. I helped start a local flag football league in late 2020. What began with around 40 kids participating has grown to over 120 kids across multiple divisions. A year in, Amy joined us and started a complimentary youth cheerleading program, which has grown to 85 cheerleaders. Deacon plays club soccer, golf, basketball and baseball, and Elliott does cheer, gymnastics and soccer. I find myself coaching these two most of the time. Youth sports is a passion of mine. I’m active in the Romney Rotary Club and sit on the board of The River House, a nonprofit that promotes the arts and music in our rural communities. Many art and music programs have been defunded in the school system, particularly ours. It is important that children have exposure to the arts. What advice would you give someone considering entering the banking industry? I would start by sharing that there’s more to banking than you see on the surface. Unless you work at a bank, you probably wouldn’t know that. There is so much opportunity to grow in banking/financial services. From insurance and advisory services to accounting and traditional banking services, the possibilities are endless. Banking is a relationship business, whether you are on the front lines or in the back offices, so being able to clearly and compassionately communicate with the public is very important. What do you think will be some of the dominant trends within the banking industry in the next 5-10 years? I think we will see more banks being consolidated as well as more players, like fintechs, nibbling at the edges of what have been traditional core banking services. I have some concerns about smaller banks in rural areas getting left behind in the consolidation, but if the smaller banks are doing what they need to do to stay relevant — maintaining robust in-person banking opportunities and staying up with emerging technologies when appropriate — there is certainly a place for us in the future. What has been the most rewarding part of your career? It is very rewarding when our institution provides advice or direction to a customer who then follows said guidance and becomes more financially solid. A good example of that would be: John and Jane Doe want to buy a house, and they come in with terrible credit, a few judgments and some things they need to clean up. We then educate them on the best ways to clean up their credit. A year later, they come back to the bank, they’re in a better financial position, and we can lend them money for that house. There is no better feeling than helping customers take ownership of their own financial goals. How long have you been active in the WVBankers Association? In August of 2015, I joined the WVBA board and have been serving on numerous committees and in various positions since then. Why is being a member important? Our association serves the smallest to the largest banks and everyone in between. Access to education throughout all areas of the bank is provided by the Association, which is important to keep employees trained and banks compliant. Direct access to other members and opportunities to network comes through membership, which helps create strength and comradery. And ultimately, being a unified voice in the state of West Virginia is very important. What are you looking forward to most during your term as chairman? We have the goal of expanding the Association staff in Charleston. I also want to meet with as many people in bank leadership as possible. That includes not only presidents of banks but potentially their directors and their senior management team. I see so much value in networking. But my primary goal is to become the industry association of preference when it comes to decision-making in the state of West Virginia. When legislators make a decision that affects the West Virginia economy, we would like for them to think, “We need to reach out to the bankers and get their input.” 8 West Virginia Banker
Thank You to Our Sponsors WVBankers Annual Convention 130th FRIENDS OF CONVENTION DIAMOND SPONSORS DIAMOND SPONSORS TITANIUM SPONSORS GOLD SPONSORS SILVER SPONSORS BRONZE SPONSORS FRIENDS OF CONVENTION AMERICAN BANKERS ASSOCIATION CREWS & ASSOCIATES, INC. ICI CONSULTING JACKSON KELLY PLLC SUTTLE & STALNAKER PLLC TRAVELERS 130 Thank you to our sponsors WVBANKERS ANNUAL CONVENTION TH DIAMOND SPONSORS TITANIUM SPONSORS GOLD SPONSORS SILVER SPONSORS BRONZE SPONSORS FRIENDS OF CONVENTION AMERICAN BANKERS ASSOCIATION CREWS & ASSOCIATES, INC. ICI CONSULTING JACKSON KELLY PLLC SUTTLE & STALNAKER PLLC TRAVELERS 130 Thank you to our sponsors WVBANKERS ANNUAL CONVENTION TH TITANIUM SPONSORS GOLD SPONSORS SILVER SPONSORS BRONZE SPONSORS American Bankers Association Crews & Associates Inc. ICI Consulting Jackson Kelly PLLC Suttle & Stalnaker PLLC Travelers 10 West Virginia Banker
Consumer Compliance Trends By Kelly Shafer, CPA, Suttle & Stalnaker Violation Number of Violations Percentage of Total Violations Truth in Lending Act Disclosures (TILA/ Regulation Z) 441 36% Inadequate Flood Insurance (FDPA) 136 11% Electronic Funds Transfer Errors (EFTA/ Regulation E) 129 11% Deposit Account Disclosures (TISA/ Regulation DD) 101 8% Re-Presentment Practices (Section 5 of FTC Act) 96 8% Total 903 74% Notably, violations of the Truth in Lending Act comprised the most significant portion, at 36% of the total citations during the year. The most common violation, comprising 9% of total TILA violations, related to inaccurate or incomplete disclosures of closing cost information on the closing disclosure document. Violations were also noted under Regulation E of the Electronic Funds Transfer Act. Commonly cited issues included inadequate investigation of electronic funds transfer errors, failure to report the results of the investigation to the customer and errors that were not corrected timely, with these areas making up 46% of EFTA violations. Violations of Section 5 of the Federal Trade Commission (FTC) Act made up 8% of total citations. The FDIC frequently cited institutions for charging multiple non-sufficient funds (NSF) fees for the re-presentment of the same transaction, while the disclosures did not clearly describe the institution’s re-presentment practice. This violation represented 58% of all FTC Act citations. A Look Ahead The issues noted by examiners in the 2023 supervisory report influence several consumer compliance trends expected to impact the regulatory landscape in the coming year. The following are a few of the areas anticipated to garner regulatory attention: Fair Treatment of Consumers: Expect a continued emphasis on consumer treatment, including transparency in fees and product terms and conditions. Examiners are scrutinizing practices to ensure they are not misleading to customers. This is seen most notably in the recent focus on overdraft fees and re-presentment practices. Customer Complaint Practices: In addition to exam results, customer complaints drive regulatory changes. Examiners are focusing on how institutions handle customer complaints with an expectation for banks to have effective mechanisms in place to address concerns In this article, we will review the top consumer compliance issues identified by the FDIC in a recent supervisory report and examine upcoming trends that are expected to gain attention from examiners during the latter half of 2024 and into 2025. The FDIC’s consumer compliance supervisory report released in the spring of 2024 highlights trends cited by examiners for the most recent calendar year. The results are summarized from nearly 900 consumer compliance examinations conducted during 2023. The FDIC’s consumer compliance exams use a risk-focused methodology, resulting in the most frequently cited violations involving regulations representing the most significant potential for consumer harm. 2023 Consumer Compliance Highlights Trends in consumer compliance exam citations essentially center around five areas identified in the chart below. These areas comprised 903 of the total 1,227 violations and made up 74% of violations cited by examiners in 2023. 12 West Virginia Banker
promptly and fairly. In a look to the future, the role that conversational AI and other automated platform solutions will play in handling customer complaints will likely start to make its way into regulatory enforcement. Third-Party Risk Management: An increased reliance on third-party vendors for a variety of services creates concern from examiners about risks associated with these relationships. Data security and compliance with consumer protection laws take center stage. It is worth noting that the FDIC pointed out in the consumer compliance supervisory highlights that there has been a 5% increase in consumer complaint volume associated with third-party providers from 2022 to 2023. Many of these complaints are linked to vendors providing credit card servicing, deposit processing and error disputes. Environmental, Social and Governance (ESG) Factors: There is an increasing regulatory interest in how banks integrate ESG factors into their operations. For example, examiners may begin taking a closer look at the environmental and social impacts of bank lending practices. Artificial Intelligence (AI): Banks are gradually using AI and machine learning for various purposes, such as credit scoring and fraud detection. As AI gains popularity, regulatory measures are expected to focus on ensuring that these technologies do not violate consumer protection laws or result in discriminatory outcomes. Cybersecurity: Cybersecurity continues to be a main focus for examiners as digital banking becomes increasingly prevalent. Banks are expected to implement robust security measures to safeguard customer information from cyber threats and data breaches. Examiners remain focused on prevention, detection, response and recovery capabilities in response to cybersecurity threats. Compliance Culture and Governance: Examiners are paying closer attention to overall compliance culture with the expectation that banks will have strong governance frameworks to address compliance risk. They are looking for clear accountability structures from the board of directors down and effective compliance training programs for employees. Anticipated trends highlight changing technology and shifting consumer expectations, reflecting the evolving landscape of bank consumer compliance. Staying at the forefront of these trends is fundamental for banks to maintain compliance and build trust with both customers and examiners. Kelly Shafer, CPA, has over 19 years of experience in public accounting. As a member of the audit and consulting department of the firm, her primary focus has been on serving clients in the financial institution, higher education, governmental and nonprofit sectors. For more information, please contact Kelly Shafer at (304) 343-4126 or kshafer@suttlecpas.com.
Utilizing the Corporate Fiduciary When drafting trust documents, selecting a trustee can be a challenge when picking between family members and trusted family friends or professionals. It is a heavy responsibility many do not understand, nor do they wish to serve in that role due to these relationships. Utilizing a corporate fiduciary offers flexibility and efficiency for attorneys and law firms whose practices include estate planning and administration, probate and trusts. Delegating trust and/or estate administration to an experienced corporate fiduciary can save significant time and investment in non-legal resources. This way, attorneys can focus on delivering higher-value legal, tax and estate planning services. Corporate Trustee Expertise A corporate trustee has the requisite expertise to administer trusts. Banks have dedicated teams of professionals specializing in administration, investments, compliance and accounting. Often, these professionals are highly credentialed and hold relevant certifications. This allows banks By Elisabeth A. Slater, JD, CTFA, Executive Vice President and Wheeling Market Fiduciary Director, Security National Trust Company to successfully administer and manage all types of assets, including complex assets such as real estate, closely held businesses and mineral interests. Infrastructure Banks have the infrastructure to support efficient trust administration. For taxes, investments and compliance, the right technology is in place for thorough recordkeeping. Unlike individuals or law firms, banks are regulated by the government and examined on a regular basis. During these examinations, banks receive guidance on compliance, performance and best practices. This added layer of protection gives beneficiaries and co-trustees peace of mind. Continuity A corporate fiduciary can provide the continuity of service necessary to serve a family over many decades. Smooth 14 West Virginia Banker
succession is important when selecting a trustee as they will almost certainly deal with multiple branches or generations of a family. The unavailability, incapacity or unwillingness of an individual or law firm trustee may disrupt the trust administration and/or create legal headaches. Corporate trustees, however, provide reliable, long-term and uninterrupted service. Loyalty and Impartiality Trustees have a duty to manage the trust in a reasonable manner and avoid self-dealing. They must be equally loyal to present beneficiaries as to future beneficiaries. In other words, corporate trustees are impartial in decision‑making. Maintaining impartiality is easier said than done for the individual trustee who is a member of the family or a long-time family confidant. Corporate trustees excel in this area as they are not bogged down by family drama. Banks are able to remain objective and emotionally neutral. Further, many banks rely on personal service as a cornerstone of their business model. Client relationships are important to these banks, but the corporate barrier still exists to maintain loyalty and impartiality to all beneficiaries. Family Unity The balance that is struck by a corporate trustee between personal service and its duty of loyalty can help manage family dynamics. The administration of an estate and the resulting trusts can be emotional for loved ones and heirs. The presence of an impartial party can contribute to stability at a time when incapacity or death has heightened family emotions. A corporate trustee can become a source of security and steadiness for both the short and long terms. Corporate Executor A family member rarely has the skillset or the time to successfully administer an estate. As a result, the burden of the estate administration often falls on the attorney or paralegal. Delegating administration to a corporate executor saves an attorney from performing time‑consuming, non-legal tasks. Corporate executors add extra value with efficiency. Banks are experts in marshaling assets, working with other banks/institutions/etc., utilizing appraisers and liquidators, engaging real estate professionals and coordinating with tax advisors. This efficiency often yields emotional stability for grieving families. Collaboration Between Corporate Fiduciary and Counsel Appointing a corporate fiduciary gives the attorney the ability to delegate lower value and time-consuming work. The attorney is still the main advisor to the client. However, the corporate fiduciary can serve the client in a number of ways, including as trustee, executor or agent. The focus of the corporate fiduciary is client service. The fiduciary will encourage the client to seek the attorney for advice, estate planning, related legal services, etc. Ultimately, the attorney is the driver of the relationship, but the utilization of a corporate fiduciary can enhance the relationship. Using a corporate fiduciary is a win for all involved, saving money, time and headache in the sundries of estate and trust administration. Banks are designed to serve in this capacity and fulfill what is a most difficult role for individuals. Do not overlook this opportunity when drafting estate plans. Your clients will appreciate and value you even more as their counsel. Using a corporate fiduciary is a win for all involved, saving money, time and headache in the sundries of estate and trust administration. 15 West Virginia Banker
Amid the Hype, Is AI Right for Your Bank? By Milton Bartley, Co-Founder, President & CEO, ImageQuest Is your bank ready to navigate the rapidly evolving world of artificial intelligence (AI)? AI is transforming industries worldwide, and banking is no exception. As AI technologies become more sophisticated, banks have unprecedented opportunities to enhance operations, improve customer experiences and stay ahead of the competition. However, amid the hype, it is crucial to approach AI thoughtfully to ensure positive outcomes for your customers, employees and other stakeholders. This article provides practical tips to help you navigate the complexities of AI adoption while safeguarding your bank’s reputation. Identifying Opportunities for AI in Your Bank We recommend starting with AI applications that are simple, safe and easy to implement. Instead of immediately tackling complex areas like lending compliance or advanced data analysis, begin with foundational uses that familiarize your employees with AI technologies. Streamlining Internal Documentation with AI Utilize AI tools to help create standardized documents such as Standard Operating Procedures (SOPs). This can enhance consistency and efficiency in your documentation process. Enhancing Marketing Efforts AI-powered assistants like Microsoft Copilot can assist in generating marketing materials tailored to your clientele. By providing insights and drafting content, these tools can help your marketing team create more effective campaigns. Assisting with Vendor Due Diligence Another practical application is using AI to streamline the evaluation of vendor due diligence documents, such as SOC 1 and SOC 2 reports. AI tools can quickly scan these lengthy documents to identify and extract key sections like Complementary User Entity Controls (CUECs). This not only saves time but also reduces the risk of overlooking critical information that could impact your bank’s security and compliance posture. By automating the extraction and analysis of important details, AI can help your risk management or vendor management teams make more informed decisions when assessing third-party vendors. This ensures that your bank maintains high standards of security and compliance without overburdening your staff. Proceeding with Caution on Customer-Facing AI Currently, we advise against deploying customer-facing AI tools. These technologies are still evolving and may not reliably handle customer transactions. Moreover, many banks pride themselves on personal relationships, and introducing AI bots could risk undermining that connection. Assessing Your Bank’s Readiness for AI Preparing for AI integration involves focusing on three key areas: your strategy, your team and your regulators. Your Strategy This is critically important. If AI isn’t part of your bank’s strategic plan, it is premature to evaluate AI tools. Revisit your bank’s overarching vision and determine how an IT strategic plan incorporating AI can support it. Identify the problems, challenges and opportunities that AI can address. This doesn’t have to be a lengthy process. Collaborate with your team to explore how AI fits into your strategic plan — it might take a day but doesn’t need to span six months. Your Team It is highly likely that some of your employees have experimented with AI tools like ChatGPT, which are readily accessible and free. Similar to security training, your team needs to understand appropriate uses of AI within your bank. Educate employees and directors about the security implications, such as where information input into AI platforms is stored and how it might be used. Establish clear policies defining acceptable and forbidden uses to prevent unintended data breaches or compliance issues. Your Regulators Regulatory bodies have yet to issue firm guidelines on AI usage in banking. In the 16 West Virginia Banker
TAKE YOUR MEETING TO NEW HEIGHTS AT AMERICA’S RESORT. Prepare to have your minds come alive in an environment that is both inspiring and captivating. From elegant ballrooms to intimate boardrooms, The Greenbrier features a variety of spaces that can accommodate meetings of any size. Experience the difference at America’s Resort and elevate your next meeting. 101 Main Street, West White Sulphur Springs, West Virginia 24986 304.536.7882 • Greenbrier.com meantime, they rely on Vendor Due Diligence, questioning whether you understand how AI programs handle information and how vendors’ AI tools operate. Refer to frameworks like the NIST AI Risk Management Framework for guidance. This resource offers valuable insights into implementing AI responsibly, mirroring how cybersecurity requirements often align with NIST’s Cybersecurity Framework (CSF). You can access the NIST AI framework by scanning the QR code. https://nvlpubs.nist.gov/nistpubs/ai/NIST.AI.600-1.pdf Should You Move Forward With AI? We have only skimmed the surface of what bank leaders need to consider when implementing AI. While this article provides a starting point, navigating AI’s complexities requires dedicated time and expertise. Partnering with experts like ImageQuest ensures you receive tailored guidance on AI developments and implementation strategies. We can assist you with: • Using AI to improve operational efficiencies. • Developing an IT strategic plan for the bank’s overall vision that includes AI. • Identifying the problems, opportunities and challenges that AI tools can help. • Drafting an AI-acceptable use policy or guideline document. • Creating an AI pilot group. • Completing Vendor Due Diligence. At ImageQuest, we have the expertise to guide you through every step of AI integration. Contact us today to schedule a risk-free consultation and embark on a smart path toward integrating AI into your bank. Final Thoughts Embracing AI in banking requires a thoughtful and strategic approach. By starting with manageable applications and focusing on your bank’s readiness, you can unlock the benefits of AI while mitigating risks. Remember, your bank’s reputation is paramount — taking careful steps now will position you for success in the evolving landscape of AI. Milton Bartley is co-founder, president & CEO of ImageQuest, an Information Advisory Services and Managed IT firm headquartered in Nashville, Tennessee. Milton has more than 25 years of experience assessing and mitigating risks for regulated organizations. As the world’s threat landscape has changed over the last two decades, Milton’s direct industry experience has positioned him and ImageQuest to support risk management and IT compliance & governance programs for organizations in a cross-section of industries. Mr. Bartley can be contacted at mbartley@imagequest.com. 17 West Virginia Banker
The End of Chevron Deference and Its Impact on the Banking Industry By Amy J. Tawney, Partner, and Jessica P. Tarantine, Associate, Bowles Rice LLP Although the actual long-term impact of the overruling of Chevron deference will likely be determined through years of litigation, the initial impact on the banking industry is potentially mixed. On the one hand, the banking industry will have a greater likelihood of success when challenging regulatory agency decisions. Banking regulators will need to be more cautious in their future rulemaking and provide a statutory basis when adopting new regulations. Conversely, relying on agency regulations and guidance will be more difficult due to the reduced judicial deference to agency interpretations. Overall, it is anticipated that litigation challenging regulatory agency rules and decisions will be on a stark incline.
Chevron Deference The doctrine known as “Chevron deference” was established in 1984 in Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc.1 Chevron deference required courts to defer to an agency’s reasonable interpretation of an ambiguous law that the agency administers.2 Chevron deference has shaped the courts’ review of agency decisions and regulations for the last 40 years and has led lower federal courts to rule in favor of regulatory agencies in the majority of challenges to their rules and regulations.3 Since Chevron, the role that regulatory agencies have played in interpreting their rules and regulations has greatly expanded. Loper Bright Decision Overruling Chevron Deference The Supreme Court’s 6-3 decision on June 28, 2024, in the Loper Bright Enterprises v. Raimondo case, formally overruled Chevron deference.4 The Court held that the Administrative Procedure Act required courts to “exercise their independent judgment in deciding whether any agency has acted within its statutory authority.”5 The Court quoted Justice Marshall in Marbury v. Madison that “[i]t is emphatically the province and duty of the judicial department to say what the law is.”6 The Court noted that even when “an ambiguity … implicate[s] a technical matter,” the judges, who are informed and educated by the parties, are expected to do and “handle technical statutory questions.”7 The one exception is when “a particular statute delegates authority to an agency consistent with constitutional limits.”8 In this instance, the Supreme Court directed courts to “respect the delegation, while ensuring that the agency acts within it.”9 Congress retains the ability to expressly delegate authority to federal agencies. Following the Loper Bright decision, Congress will be required to be more precise in granting authority to federal agencies to avoid the heightened scrutiny by the court system. The Court also made clear that its overruling of Chevron deference does not apply retrospectively.10 Cases that were decided on Chevron deference remain valid under the principle of “stare decisis,” which is a legal doctrine that requires courts to follow the decisions of previous cases. This will make it more difficult to challenge existing regulatory interpretations based solely on the Court’s change in interpretative methodology. Impact on the Banking Industry Opportunities to Challenge Existing Regulations and Increase in Litigation The dramatic end of Chevron deference will likely increase the number of cases filed challenging agency regulations and decisions and increase the banking industry’s likelihood of success when challenging federal agency regulations and the interpretation of those regulations. In situations where regulators have not been delegated clear and lawful authority by statute, challengers will no longer have to overcome an automatic deference to the regulatory agency’s interpretation. In situations involving statutory ambiguities, the banking industry is now on a more level playing field to challenge agency decisions. To be successful, opponents must only show that the regulatory agency’s interpretation of its statute is not the “best” one. It does not have to prove that the regulatory agency’s interpretation is 19 West Virginia Banker
not “reasonable” — a much more daunting task. Accordingly, banks may gain more leverage in dealing with their regulators and in challenging their decisions. Although automatic deference has been eliminated, courts are not precluded from considering the views of the regulatory agency when determining the “best reading” of a statute. In Loper Bright, the Court cited to Skidmore v. Swift, which indicated that courts should give no presumptive weight to agency interpretations; instead, courts should consider the agency’s power to persuade.11 Overall, Skidmore addressed the weight given to an agency’s views and concluded that a court was to consider the “thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all of those factors which give it the power to persuade.”12 Careful Rulemaking Regulatory agencies will need to be more careful when drafting rules to ensure that there is statutory basis for their rulemaking. The ability of regulators to respond to risks in areas not covered by statute will be greatly diminished. This reduced ability may force legislative action to address these risks and permit the industry members to be involved in the legislative process. However, it could also be detrimental to the banking industry because the risks to the industry evolve at such a rapid pace that the legislative process cannot effectively address these risks. Regulatory Uncertainty The most concerning impact of the end of Chevron deference on the banking industry is regulatory uncertainty. Predicting how a court will rule on the validity of agency regulations and interpretations that rely on broad or ambiguous statutory language, without Chevron deference, will be challenging. Although the regulatory burden on the banking industry has been significant, it is important that banks are able to rely on regulations when establishing processes and procedures, and planning for future compliance. As the “best” interpretations of statutes are established over time, the regulatory uncertainty should be minimized. 1. Chevron USA. Inc. v. Natural Resources Defense Council Inc., 468 US 837 (1984). 2. Id. at 837. (“[I]f Congress has not directly spoken to the precise question at issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.”) 3. See e.g., Garcia v. Sessions, 856 F.3d 27, 35 (1st Cir. 2017); Lopez v. Terrell, 654 F.3d 176, 181 (2d Cir. 2011); Vineland Fireworks Co. v. Bureau of Alcohol, Tobacco, Firearms & Explosives, 544 F.3d 509 (3d Cir. 2008); N.L.R.B. v. Bluefield Hosp. Co., LLC, 821 F.3d 534 (4th Cir. 2016). 4. Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244, 219 L. Ed. 2d 832 (2024). 5. Id. at 2247. 6. Id. at 2247 citing Marbury v. Madison 1 Cranch 137, 177, 2 L.Ed. 60. 7. Id. at 2266. 8. Id. at Fn. 26. 9. Id. at Fn. 26. 10. Id. at 2269. 11. Id at 2247 citing Skidmore v. Swift, 323 U.S. 132 (1934). 12. Id. at 2247. Amy J. Tawney is a partner in the Charleston, West Virginia, office of Bowles Rice LLP. She focuses her practice on banking law, mergers and acquisitions, securities law and regulatory matters. Contact Amy at (304) 347-1123 or atawney@bowlesrice.com. Jessica P. Tarantine is an associate in the Canonsburg, Pennsylvania, office of Bowles Rice LLP. She focuses her practice on areas of employment benefits, executive compensation and ERISA. Contact Jessica at (724) 514-8924 or jessica.tarantine@bowlesrice.com. As the “best” interpretations of statutes are established over time, the regulatory uncertainty should be minimized. 20 West Virginia Banker
Audit Stress? Lessen Annual Audit Anxiety with a 3(16) Fiduciary The Department of Labor (DOL) requires retirement plans with at least 100 eligible plan participants to submit an audit report with their annual Form 5500 return. As you might expect, any audit — even if it’s a routine review — can create anxiety for a plan sponsor. Working with an experienced 3(16) fiduciary can help reduce stress and make for a smoother audit process. Plan Audit Basics The Employee Retirement Income Security Act of 1974 (ERISA) requires plan sponsors to maintain retirement plans for the exclusive benefit of plan participants and beneficiaries. One way that the DOL meets this rule is to require plan administrators to submit an annual report detailing various aspects of plan operations, including financial data. Plans with 100 or more participants with account balances at the start of the plan year must submit an audit report with the plan’s annual Form 5500 return. The audit must be conducted by an independent qualified public accountant (IQPA), who compares the Form 5500 information with the plan sponsor’s other relevant financial data. The IQPA has significant latitude to determine what is needed to present an informed opinion, but a plan audit typically includes a review of numerous areas: • Timely employer and employee contributions, comparing plan records with payroll records. • Nondiscrimination testing results, confirming that any failures have been corrected. • Compliance with distribution and loan program requirements. • Plan expenses, including whether they are necessary and reasonable. • Financial controls or other mechanisms that the plan sponsor uses to ensure conformity with federal retirement plan rules and generally accepted accounting principles. The IQPA renders an “opinion” based on a review of the plan sponsor’s relevant financial records, reconciling these findings with the information presented in the Form 5500 filing with the DOL. On Form 5500, there are check boxes for four possible opinion options: • Unmodified opinion — The IQPA concludes that the plan’s financial statements are presented fairly in all material respects. By John Schafer, VP, National Leader, Financial Institutions Channel, Pentegra 22 West Virginia Banker
• Qualified opinion — The IQPA concludes that misstatements are material but not pervasive, or the IQPA cannot obtain enough appropriate audit evidence on which to base an opinion. • Disclaimer opinion — The IQPA cannot obtain enough evidence on which to base an opinion and concludes that the possible effects of undetected misstatements, if any, could be material and pervasive. • Adverse opinion — The IQPA has obtained sufficient audit evidence and concludes that misstatements are both material and pervasive. Obviously, any less-than-favorable opinion may raise a red flag with the DOL. Plan sponsors will want to work with their auditor to address any concerns raised by the IQPA before submitting the audit with Form 5500. The Value of a 3(16) Fiduciary Audits require a significant amount of time and input from employers who already have ongoing day-to-day job responsibilities. Audits are also very specific and time-sensitive. For many plan sponsors, the information discussed and requested can be overwhelming. Fortunately, with Pentegra’s audit support services, annual retirement plan audits don’t have to be an anxious process for plan sponsors. As a 3(16) fiduciary, Pentegra works directly with the independent plan auditor. The plan’s account manager becomes the dedicated contact for the auditor, responding to questions and providing any requested materials to the auditor. At Pentegra, we recognize how time‑consuming and stressful annual audits can be. We know because we’ve walked thousands of clients through this process as a fiduciary. And while audits are never fun, Pentegra can take the mystery — and most of the pain — out of the audit process. If you would like to continue the conversation with Pentegra, please contact John Schafer, VP, national leader, Financial Institutions Channel, at john.schafer@pentegra.com or (317) 506-6875. Working with an experienced 3(16) fiduciary can help reduce stress and make for a smoother audit process. 23 West Virginia Banker
By Annie Cortez, Managing Consultant, and Macie Latham, Lead Consultant, Forvis Mazars Be Proactive and Limit Asset Misappropriation Schemes Learn How Your Organization Can Help Protect Against the Risk of Internal Fraud The Association of Certified Fraud Examiners’ (ACFE) 2024 Report to the Nations1 highlights the trends observed in occupational fraud, which includes asset misappropriation, financial statement fraud and corruption. According to the report, the most common scheme is asset misappropriation, defined as “a scheme in which an employee steals or misuses the employing organization’s resources.”1 According to the study, Certified Fraud Examiners (CFEs) estimate that organizations lose 5% of revenue to fraud each year, with the median loss related to asset misappropriation being $120,000, up 20% from the 2022 Report to the Nations.1,2 CFEs estimate that organizations lose 5% of revenue to fraud each year, with the median loss related to asset misappropriation being $120,000, up 20% from the 2022 Report to the Nations. The risk of fraud is ever-present and on the rise. What can your organization do to help protect against the risk of internal fraud? Increase the Likelihood of Identifying Fraud and Reducing the Fraud Scheme’s Duration Even with sophisticated preventive controls, fraud can still occur with the typical scheme lasting 12 months before detection.1 A key strategy to help manage fraud risk is to enact measures to increase the likelihood of early detection, effectively limiting the duration of the scheme. In the study, frauds lasting greater than five years resulted in a median loss of $875,000 and frauds lasting six months or less resulted in a median loss of $30,000. 24 West Virginia Banker
In the following, we outline what organizations can do now to prevent and detect asset misappropriation: 1. Proactive Data Monitoring Limiting the fraud’s duration and loss may be accomplished through proactive surveillance or data monitoring. In fact, of all the detection methods analyzed in the ACFE’s research, proactive surveillance and data monitoring detected frauds fastest, with a median duration of six months. While data analytics is an effective tool to reduce fraud risk, only 53% of organizations in this study with more than 100 employees have a proactive data analytics program in place. Additionally, only 19% of organizations in this study with less than 100 employees have a program.1 Of all the detection methods analyzed in the ACFE’s research, proactive surveillance and data monitoring detected frauds fastest, with a median duration of six months. Payment Risk Analytics is the culmination of decades of experience performing data analytics to identify potential red flags of fraud in accounts payable, purchasing card and payroll data. Check and payment tampering pose the highest dollar risk for asset misappropriation schemes.1 Utilizing Payment Risk Analytics can be an effective way to help manage the risk of internal asset misappropriation fraud at your organization and provide additional insight into day-to-day operations. 2. Fraud, Ethics and Compliance Hotline In addition to applying proactive data analytics, organizations can also more effectively handle fraud risk by setting up a fraud, ethics and compliance hotline. Cases of fraud are most commonly detected through tips, which net three times as many cases as any other detection method. This finding is consistent with prior ACFE studies, which have shown tips to be the most common way fraud is detected. IntegraReport, the fraud, ethics and compliance hotline from Forvis Mazars, assists our clients by helping to increase the likelihood and speed of detecting incidents of fraud, ethical violations and compliance issues. The ACFE’s research found that organizations with hotlines were nearly twice as likely to detect fraud via tips as organizations without hotlines. This illustrates the crucial roles that hotlines play in addressing fraud risk. 1. “Occupational Fraud 2024: A Report to the Nations,” Association of Certified Fraud Examiners, Reporting from January 2022 to September 2023. 2. “Occupational Fraud 2022: A Report to the Nations,” Association of Certified Fraud Examiners, Reporting from January 2020 to September 2021. Annie is a member of the Analytics team, focusing on product development and automation. Annie’s experience includes developing new products and helping to streamline and automate existing products. She performs analytics to help identify fraud, waste and abuse in payment data that can help highlight opportunities for internal control improvements. Macie is a member of Forvis Mazars’ Forensics & Valuation practice unit. She is an experienced senior consultant with a demonstrated history of working in the accounting industry. Macie runs the day-to-day operations of the INTEGRAREPORT hotline, where she provides dynamic training and Unmatched Client Experiences.® To learn more, contact Macie Latham at macie.latham@us.forvismazars.com and Annie Laudick Cortez at annie.laudick@us.forvismazars.com. DID YOU KNOW? Enjoy your association news anytime, anywhere. Scan the QR code to visit our online publication to stay up to date on the latest association news, share articles and read past issues. west-virginia-banker.thenewslinkgroup.org 25 West Virginia Banker
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