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UNITED STATES OF AMERICA BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D.C. and THE ACTING SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK NEW YORK, NEW YORK > In the Matter of BANCO ATLANTICO, Barcelona, Spain ) ) ) ) ) ) ) ) ) ) S.A. and BANCO ATLANTICO, New York Agency New York, New York S.A. WHEREAS, in recognition Docket No. 99-O 10-B-FB 99-O 10-B-FA Cease and Desist Order Issued Upon Consent of their common goal to maintain and improve the overall condition of and to ensure compliance with all applicable federal and state laws, rules, and regulations by the agency located in New York, New York (the “New York Agency”) of Banco Atlantico, S.A., Barcelona, Spain (“Banco”), Banco, on its own behalf and on the behalf of the New York Agency, the Board of Governors of the Federal Reserve System (the “Board of Governors”) and the New York State Banking Department (the “Banking Department”) have mutually agreed to enter into this Consent Cease and Desist Order (“Order”); WHEREAS, Mr. Antonio Sanchez-PedreAo Director of Banco, is duly empowered Martinez, in his capacity as Managing to execute this Order, and to bind Banco in full to its terms, and has executed the same after having advised all of the members of the board of directors of Banco of the content of and of his execution of the Order; WHEREAS, on May 27, 1999. the board of directors of Banco, at a duly constituted meeting, after having reviewed the Order, will adopt a resolution ratifying in full the action taken by the Managing Director of Banco. to enter into this Order on behalf of Banco and the New York Agency consenting to compliance by Banco and the New York Agency and their institution-affiliated parties, as defined in sections 3 (u) and 8 (b) (4) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 18 13 (u) and 1818 (b) (4)), and their affiliates, as defined in General Regulations institution-affiliated parties”): of the Banking Board Part 11 (3 N.Y.C.R.R. parties and affiliates collectively Part 11) (hereinafter referred to as “institution-affiliated (1) to comply with each and every provision of this Order; (2) waiving the issuance of a notice of charges on any matter set forth in this Order; (3) waiving a hearing for the purpose of taking evidence on any matter set forth in this Order; (4) waiving any and all rights to contest the issuance of a cease and desist order by the Board of Governors pursuant to 12 U.S.C. 18 18 or by the Banking Department pursuant to section 39 of the New York State Banking Law; (5) waiving any and all rights to judicial review of this Order; and (6) waiving any and all rights to challenge or contest the validity of the provisions of this Order; and WHEREAS, the Secretary of the board of directors of Banco will formally certify the review, deliberation, and action taken by the board of directors ratifying the execution of the Order by the Managing Director, and will cause the same to be delivered promptly to the Federal Reserve Bank of New York (“Reserve Bank”) and to the Banking Department; NOW, THEREFORE, before the taking of any testimony or adjudication any issue of fact or law herein, and without this Order constituting an admission of any allegation made or implied by the Board of Governors or the Banking Department with this proceeding, of or finding on and solely for the purpose of settlement of this proceeding in connection without a protracted or extended hearing or testimony and pursuant to the aforesaid resolution: 2 IT IS HEREBY ORDERED that Banco, the New York Agency and their institutionaffiliated parties cease and desist and take affirmative action as follows: Management Review 1. Within 45 days of this Order, Banco shall engage a qualified independent consultant to perform a review of management and personnel responsible and business activities of the New York Agency. the organizational for all functional areas The review shall focus on an assessment of structure of the New York Agency, including reporting lines, duties performed by each officer and employee, and the ability of that person to perform competently his or her assigned duties. of a management The primary purpose of this review shall be to aid the development structure staffed by qualified and trained personnel suitable to the needs of the New York Agency. Department. The scope of the review shall be approved by the Reserve Bank and the Banking In this connection, will acknowledge in its engagement that all substantive information, letter with Banco, the independent consultant including work papers, programs and procedures related to the review will be provided to the Reserve Bank and the Banking Department upon request. the Banking Department engagement Prior to the commencement of the engagement, shall receive a copy of the engagement letter shall, at a minimum, the Reserve Bank and letter indicating its terms. The provide that the independent consultant will prepare a report to the board of directors of Banco containing its findings and recommendations the independent and that consultant will forward a copy of the report to the Reserve Bank and the Banking Department. Compliance 2. Program Within 30 days of this Order, Banco and the New York Agency shall jointly complete a written compliance program for the New York Agency designed to ensure compliance requirements with all applicable federal and state banking laws, regulations, and supervisory including this Order, and shall submit the program to the Reserve Bank and the Banking Department. comprehensive management This program shall include, at a minimum, compliance policies and procedures, and staff, and designation responsible for the daily coordination regulations by the New York Agency. independent testing of compliance qualified: trained, and experienced a compliance the establishment of training program for of a position or positions within the New York Agency and monitoring of compliance with all applicable rules and The compliance program shall also provide for with all applicable rules and regulations third parties, such as independent to be conducted by public accountants or specialists in this subject matter, who are not, in any manner, affiliated with Banco or the New York Agency. Regulatory 3. Reports Within 30 days of this Order, Banco and the New York Agency shall jointly submit to the Reserve Bank and the Banking Department written policies and procedures designed to ensure that future regulatory reports submitted to the Board of Governors, the Reserve Bank and the Banking Department are filed in an accurate manner. The procedures shall include. without limitation, corrective steps to ensure that all required reports hereafter filed by Banco and the New York Agency accurately reflect the institution’s financial condition on the dates for which such reports are filed, and that all records indicating how such reports are prepared are adequately maintained for subsequent supervisory review. Statutory Compliance 4. The New York Agency shall implement comprehensive controls and procedures to address and correct violations of law and regulations noted in the Report of Examination June 30, 1998, and ensure compliance and (c) of the Banking Department with section 322.1 (a) (2) and (3) and section 322.5 (b) Superintendent’s Regulations (3 N.Y.C.R.R. and (3) 322.5 (b) and (c)); and section 51.3 of the General Regulations N.Y.C.R.R. 51.3). as of 322.1 (a) (2) of the Banking Board (3 Internal Audit 5. Within 30 days of this Order, Banco and the New York Agency shall jointly submit to the Reserve Bank and the Banking Department a written audit program for the New York Agency that includes. at a minimum: (a) procedures that are consistent with generally accepted U.S. auditing (b) procedures that are comprehensive standards; the submission in scope and frequency and provide for of formal written reports to the audit committee (c) include compliance (d) of Banco; procedures to ensure that the scope of the audit function is enhanced to with all applicable federal and state regulations; risk assessments to ensure that audits of critical or high-risk areas are performed with reasonable frequency, and the assignment of ratings or expression of opinion as to the adequacy, effectiveness, and efficiency of the internal control environment of each function reviewed; (e) implementation to respond to audit findings and of corrective actions; and (0 committee procedures for management a requirement for the annual review of the audit program by the audit of Banco to ensure that the audit program is revised to reflect changes in the organizational and business environment, including the adoption of evolving industry best practices. Action Plan 6. Within 60 days of this Order, Banco and the New York Agency shall jointly submit to the Reserve Bank and the Banking Department an enhanced written action plan designed to ensure that the necessary steps are being taken to improve the internal controls and risk management functions at the New York Agency and to address all criticisms of the New York Agency set forth in the Report of Examination 5 as of June 30, 1998. The written plan, which shall include target completion dates, shall describe, at a minimum, the actions that will be taken to: (a> enhance management information (b) strengthen internal recordkeeping systems to ensure the integrity of data; and internal control functions, including, but not limited to, corrective steps to maintain segregation Agency and full implementation of duties in the New York of corrective measures concerning the chart of accounts, suspense liability accounts, proxies for transaction accounts, improper posting of assets, improper creation of time deposit accounts, general ledger imbalances and unfunded accounts, non-performing administration and non-accrual loans, data input access to historical records, security and systems access, funds transfers, deal tape-recording telex test keys and S.W.I.F.T. agreements, physical vault security and inventory, return mail, dormant and inactive accounts, Bank Secrecy Act documentation compliance and training, and screening for with the regulations of the Office of Foreign Assets Control; (4 management system, deal resolutions, upgrade the management information reports submitted to senior at Banco and the New York Agency to ensure that management appropriate information that enables it to manage the business risks of the activities of the New York Agency and to correct any weaknesses (d) is receiving and deficiencies; update and test the New York Agency’s recovery plan and test all portions of the disaster recovery plan; (e> review procedures at the New York Agency for documenting analyses and ensure that such documentation (0 is complete; and develop or enhance written policies and procedures to reflect current or improved operating practices for critical departments 7. credit of the New York Agency. Within 15 days after the end of each month following the issuance of this Order, Banco and the New York Agency shall jointly furnish to the Reserve Bank and the Banking 6 Department written progress reports detailing the form and manner of all actions taken to ensure compliance with this Order, and the results thereof. 8. Banco shall, and shall cause the New York Agency to, comply with each and every provision of Part 5 of the General Regulations of the Banking Board titled “Internal and External Audits at Branches and Agencies of Foreign Banking Corporations.” Communications 9. All communications regarding this Order shall be sent to: (4 Mr. Christopher J. McCurdy Senior Vice President Federal Reserve Bank of New York 33 Liberty Street New York, NY 10045 (b) Mr. Robert H. McCormick Deputy Superintendent of Banks New York State Banking Department 2 Rector Street New York, NY 10006 (4 Mr. Aldulmohsen Y. Al-Hunaif Chairman of the Board Banco Atlantico, S.A. Avenida Diagonal, 407 bis 08008 Barcelona, Spain (4 Mr. Antonio Sanchez-Pedreiio Managing Director Banco Atlantico, S.A. Gran Via 48 28013 Madrid, Spain (e> Mr. Olimpio Fernandez Feliz International General Manager Banco Atlantico, S.A. Gran Via 48 28013 Madrid, Spain 7 Martinez Ms. Sheila M. Donovan Senior Vice President and General Manager Banco Atlantico? S.A. - New York Agency 62 William Street New York, NY 10005 10. The provisions of this Order shall be binding on Banco and the New York Agency and each of their institution-affiliated parties in their capacities as such, and their successors and assigns. 11. Each provision of this Order shall remain effective until such time as any provision of this Order shall have been stayed, modified, terminated, suspended, or set aside by the Board of Governors and the Banking Department. 12. The provisions of this Order shall not bar, estop, or otherwise prevent the Board of Governors, the Reserve Bank, the Banking Department, department, or any federal or state agency or from taking any other action affecting Banco or the New York Agency, or any of their current or former institution-affiliated parties, or their successors or assigns. 8 Notwithstanding 13. and the Banking Department any provision of this Order to the contrary, the Reserve Bank may, in their sole discretion, acting jointly, grant written extensions of time to Banco and the New York Agency to comply with any provision of this Order. By order of the Board of Governors of the Federal Reserve System and the New York State effective this 3 Banking Department, C-7 W ti WI&& \,c Amonio Sanchez-PedreAo Managing Director 5bt Date: [ j gt( ‘i I ‘i , 1999. Board of Governors of the Federal Reserve System Banco Atlantico, S.A. Barcelona, Spain By: day of Uw By: 1 ‘*i bj Lrj .A mdb M Martinez ?a aJbcrr r dcV. ficfi~~j Secretary to the Board Date: Q&.&_ u 3, mp Banco Atlantico, S.A. New York State Banking Department By: By: : Senior Vice President and General Manager, New York LZ2EE%$L~ Deputy Superintendent of Banks A4LfiS-J