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Legal Issues Affecting Banks

SFBI: Legal Issues Affecting Banks

March 15, 2016

South Florida Banking Institute held a legal experts panel that addressed the topic of “Legal Issues

Affecting the South Florida Banking Industry” at the Coral Gables Country Club on Tuesday, March 15th,

The event began with registration followed by a lively cocktail hour, where many banking industry

professionals had the chance to meet and mingle.

SFBI President, Daniel R. Martinez, welcomed all attendees to the event. After dinner, Moderator

Danny Lipe, Executive Vice President of the Community Bank of Florida, expressed the opening

sentiment for the panel discussion on behalf of all attendees, “I think all of us at our job deal with legal

issues, a wide-range of legal issues. And it seems like every day now.” Lipe then proceeded to introduce

the guest speakers respectively by legal expertise. Members of the panel were Patricia M. Hernandez,

Partner at Avila Rodriguez Hernandez Mena & Ferri LLP; Carl A. Fornaris, Shareholder at Greenberg

Traurig LLP; and S. Marshall Martin, Executive Vice President, Enterprise Risk Executive & Co-General

Counsel at City National Bank.

Among the legal issues facing the banking industry in 2016 the panel discussed compliance in dealing

with personal liability, a forefront issue since the last few years of the financial crisis. On this topic

panelists presented the changes in personal liability and what the regulatory environment currently is.

Two areas were emphasized, the indemnification for the way corporations are set up, and statutory

provisions where you may have a right to be indemnified. Several of the panelists spoke about the

importance of insurance on the process of indemnification, particularly in regards to the perspective of

legal Side A as well as coverage limits and policy. Tail coverage for transactions post-acquisition activities

was recommended, and D&O insurance was mentioned as not enough for banker’s professional liability that should

provide needed overall coverage in an insurance program. There was a careful look at exclusion of

general insurance policies, and preparing for the exceptions and loop-holes in policies.

Additionally, panelists highlighted the importance of the upcoming November elections, as an important

crossroads taking into account political movements holding corporate banking responsible. Developments

of the Department of Justice from Yates Memo were mentioned as an official guideline for corporation

malfeasance by a rogue employee or series of employees, in respect to corporations that deal with the

Department of Justice and what is required.

Federal banking agencies have not been aggressive going after Chief Compliance Officers, but laws

and regulations are passing throughout the states increasing liability of the CCO. Legal counsel was

suggested when a bank finds a case involving the Yates Memo. It was mentioned that some states are

adopting measures to increase personal responsibility through the Yates Memo, and that this is

something to be conscientious about.

Furthermore, panelists mentioned taking measures to assess the ambiguity of fair lending, and the

impact on bankers and the liability involving it. Speakers cautioned that banks should review fair lending

not from a banking institutions perspective of data but from an enforcer’s perspective, to avoid the

potential for liability. There is a shift from consumer lending to small business lending , which speakers

highlighted as a place of impact for banking institutions. Since the banking crisis, the move from co-

borrowers versus guarantors have affected the underwriting process. Panelists spoke about legal

vulnerabilities found in not adding co-borrowers from the beginning in the underwriting process. Lastly,

they highlighted the importance of looking into the language of guarantees applied directly to the business

transactions they are representing in order to avoid legal liability with vague wording.

Other topics discussed included the unintentional disclosure of customer information, and what to do

when it is put at risk of identity fraud. There is a need for banks to look into third party vendors and the

extent of their security systems for customer protection. Liability for banks that may extend through

vendor management is an opportunity to renegotiate contracts. In particular, the analysis of cyber threats

is very important, since an excessive triggering of alerts may render a real alert useless. There is a

liability that comes with having excessive alerts, in some cases banks were found responsible. In

conclusion, it is critical that a bank tailors cyber security to its business and its customers.

Make sure to stay tuned for future events!

Danny Lipe, Executive Vice President, Community Bank of Florida


Patricia M. Hernandez, Partner, Avila Rodriguez Hernandez Mena & Ferri LLP

Carl A. Fornaris, Shareholder, Greenberg Traurig LLP

S. Marshall Martin, Executive Vice President, Enterprise Risk Executive & Co-General Counsel, City

National Bank