Bankers don’t like ‘know-your-customer’ rule

Local bankers aren’t any happier with the proposed “know-your-customer” rule than are their brethren across the nation.

The rule, as proposed by the Federal Deposit Insurance Corp., is intended to target fraud and money laundering. But many people see it as yet another regulation for an already heavily regulated industry.

“I’d be the first to say sometimes I feel totally over-regulated,” says Shell Spivey, chairman of Community Bancshares Inc.

Rob Brothers, president/CEO of First National Bank and Trust Co. of Rogers, doesn’t question the intent, just the application.

“Like much legislation or regulation, the intent behind it can be good … noble and high-minded, but the practical implications of putting it into effect” can be onerous, Brothers says.

The FDIC says the rule is supposed to protect banks from becoming vehicles for, or victims of, illegal activities perpetrated by bank customers.

The new rule would require that banks establish policies for verifying customers’ identifies, their income sources and their routines. Banks would have to report any so-called “suspicious transaction” to law enforcement authorities.

“American community bankers have always prided ourselves on knowing our customers. It’s one of our strengths,” says Brothers, “but, in my personal opinion, this [proposed rule] has kind of gone way overboard.”

Spivey agrees. “In a bank our size, we know most of our customers. We don’t see a lot of folks that we’re not fairly familiar with.”

Banks are already required to report suspicious activities, Brothers says. “The principal problem that I would see with this proposal is that it’s nearly impractical to comply with. … I can just see it being an absolute nightmare for customer service.”

He adds, “When the local bank becomes an extension of … the police department, we think that’s probably going a little too far, and that’s what some of these regulations almost cause us to be.”

As an example, Brothers notes that banks must report tax identification numbers for each account to the Internal Revenue Service or face financial penalties. And that’s just one of many regulations banks must comply with, all of which add expenses to the banks’ cost of doing business.

Comment period for the proposed new rule ends March 8.