Federal Reserve Board Issues Enforcement Action and $14.5 Million Fine Against Metropolitan Commercial Bank

The Federal Reserve Board has taken a significant enforcement action against Metropolitan Commercial Bank, based in New York, New York, imposing a substantial fine of approximately $14.5 million. This action stems from violations of customer identification regulations and deficient third-party risk management practices in connection with the bank's issuance of prepaid card accounts.

In 2020, Metropolitan Commercial Bank facilitated the opening of prepaid card accounts that, unfortunately, became a conduit for illicit actors who subsequently exploited these accounts to collect unlawfully-obtained state unemployment insurance benefits. The bank's approach to opening prepaid card accounts through a third-party program manager failed to include adequate procedures for verifying the true identity of each applicant. This regulatory lapse resulted in Metropolitan breaching the customer identification rules outlined in the Bank Secrecy Act.

The enforcement action by the Federal Reserve Board mandates that Metropolitan Commercial Bank undertakes a series of critical measures to enhance its operations. These include significant improvements in customer identification processes, customer due diligence protocols, and the overall management of third-party risk.

Notably, the Board's enforcement action is being carried out in collaboration with the New York Department of Financial Services, the regulatory authority overseeing Metropolitan Commercial Bank within the state. In alignment with this joint effort, the financial institution will face penalties amounting to approximately $30 million, signifying the gravity of the regulatory infractions.

This joint action sends a clear message regarding the pivotal importance of robust customer identification rules and diligent third-party risk management practices within the banking industry. These regulations not only ensure the integrity and security of financial institutions but also play a crucial role in preventing criminal misuse of banking services.

Metropolitan Commercial Bank will now need to diligently address these regulatory concerns and implement the required enhancements to its processes and procedures. This serves as a reminder to financial institutions of the necessity for rigorous compliance and security measures to safeguard both the institution and its customers.