Should your bank add a lawyer to its staff, and, if so, what purpose would that individual serve? As one who, over the years, has served as both inside and outside bank general counsel, my answer to the first part of the question is an emphatic yes, even if it is a relatively small bank. As to the reasons why, the following quote from an OCC Examination Handbook, while not referencing lawyers specifically, illustrates the extent to which the law permeates the business of banking: “Compliance with law and regulation must be managed as an integral part of any bank’s business strategy. The board of directors and management must recognize the scope and implications of laws and regulations that apply to the bank.” Having a lawyer on staff can be very helpful to the board and management in this regard.
Although having an effective compliance management system is of vital importance, the lawyer should not be viewed as a substitute for a compliance officer. Their roles are complementary, but different. Compliance officers, at the front end of the compliance process, are responsible for making sure that applicable laws and regulations are identified and brought to the attention of the affected areas of the bank, and that employees are appropriately trained in those areas that pertain to the functions they are performing. At the back end, they must follow up, to ensure that legal and regulatory requirements are being followed. The lawyer can be helpful to the compliance officer in identifying and interpreting applicable laws and regulations, but should not usurp the compliance officer’s function. Each enhances the effectiveness of the other and provides better coverage of legal and regulatory issues than if each were to fill their roles alone. It is important that the lawyer and compliance officer work as a team, and resist any temptation to engage in one-upmanship.
Then there are myriad laws outside the realm of regulatory compliance that have an impact upon the bank, and which would typically fall within the exclusive domain of a lawyer. Forty years ago, I was a member of a three lawyer firm that handled 100% of the legal work for a thirty branch community bank in New York. Today, it is impossible for a firm of that size to serve all of a bank’s legal needs and, at the same time, carry on a general practice.
Both the lawyer and the compliance officer should be available to the board when it meets. It is not uncommon for a bank’s lawyer to also serve as corporate secretary; however, in my estimation this is not advisable. The secretary’s role is different, and taking notes for the minutes of the meeting detracts from the lawyer’s ability to concentrate on legal issues related to matters being considered by the board.
The assistance of outside counsel also will be needed, not only to handle particular transactions, but also, in conjunction with in-house counsel, to provide counsel to senior management and the board on strategic and other issues, as needed. The in-house lawyer is the one best qualified to act as liaison with outside counsel and to gauge the effectiveness of their service. That person should also be the gatekeeper to outside counsel. Sometimes bank officers want direct access to outside counsel, without having to go through inside counsel. This practice can result in legal bills for duplicative work that could have been avoided if all questions for outside counsel had been funneled through the in-house lawyer. Also, the in-house lawyer can help to reduce overall legal expense by framing the issues more concisely than if a nonlawyer bank officer were to present a question directly to outside counsel.
The lawyer hired should have broad experience in banking laws and regulations, either as inside or outside bank counsel. For community banks that may not be able to afford such an individual, it should be possible to find a recently retired, or about to retire bank attorney, who still wants to work, but not necessarily on a full-time basis. That person could then train as his or her successor a younger, less-experienced lawyer. As the old saying goes, there is no substitute for experience.
Inside counsel should not be a substitute for outside counsel. Inside counsel has the advantage of intimate knowledge of the bank’s people, operations, and business, while outside counsel can bring a broader perspective to the table. A combination of inside counsel, outside counsel, and the compliance officer, working as a team offers the best of all worlds.
About the Author
William M. Aukamp of counsel with the law firm of Archer & Greiner, Wilmington, Deleware.