HB 417

This bill would establish the Examination of Bank Service Providers Act, to authorize the Superintendent of Banks, through examiners appointed by the superintendent, to examine service providers that provide services to certain banks, subject to supervision and inspection by the superintendent

To establish the Examination of Bank Service Providers Act; to authorize the Superintendent of Banks, through examiners appointed by the superintendent, to examine service providers that provide services to certain banks, subject to supervision and inspection by the superintendent.

Section 1

The existing provisions of Chapter 3A, consisting of Sections 5-3A-1 to 5-3A-17, inclusive, of Title 5, Code of Alabama 1975, are designated as Article 1 of Chapter 3A of Title 5, Code of Alabama 1975.

Section 2

Article 2, commencing with Section 5-3A-30, of Chapter 3A, Title 5, is added to the Code of Alabama 1975, to read as follows: Article 2. §5-3A-30. This article shall be known and may be cited as the Examination of Bank Service Providers Act. §5-3A-31. The Legislature finds and declares that the connections between banks and service providers create risks to the financial system, as banks are increasingly reliant on third parties to provide or enable key banking functions and other services. Because of the role service providers have in the safety and soundness of banks and the stability of the financial system, the Legislature finds that it is necessary for banking agencies to have authority to examine service providers. The purpose of this article is to authorize the Superintendent of Banks, through examiners appointed by the superintendent, to examine service providers that provide services to banks, other than national banks, subject to supervision and inspection by the superintendent. §5-3A-32. For the purposes of this article, the following terms shall have the following meanings: (1) SERVICE PROVIDER. Any person, company, corporation, or other legal entity that provides a covered service listed in Section 5-3A-33 to a serviced bank. (2) SERVICED BANK. Every bank, bank holding company, bank service company, or any subsidiary or affiliate of a bank that is subject to the supervision of the superintendent pursuant to Section 5-3A-1, and for which covered services are performed by a service provider. §5-3A-33. (a) Whenever a serviced bank causes to be performed for itself, by contract or otherwise, any of the covered services listed in this subsection, the performance, condition, and affairs of the service provider are subject to regulation and examination to the same extent as if the services were being performed by the serviced bank itself when deemed necessary by the superintendent to ensure the safe and sound operation of a serviced bank or serviced banks or to respond to a danger, or potential danger, to the public welfare. For the purposes of this section, covered services include all of the following: (1) Data processing services. (2) Activities that support financial services including, but not limited to, lending, funds transfer, fiduciary activities, trading activities, and deposit taking. (3) Internet related services including, but not limited to, web services and electronic bill payments, mobile applications, system and software development and maintenance, and security monitoring. (b) In order to promote regulatory efficiency, in the event that a service provider has been examined by another state or federal financial services regulatory agency or by a member of the Federal Financial Institution Examinations Council (FFIEC), or any successor entity, in the immediately preceding 24 months, the superintendent may accept the results of the examination in lieu of conducting his or her own examination. Nothing in this article shall be construed as limiting or otherwise restricting the superintendent from participating in any examination by any other state or federal agency or a member of the FFIEC. §5-3A-34. Examination reports of service providers created or obtained by the superintendent or State Banking Department are confidential subject to Sections 5-3A-3 and 5-3A-11. The superintendent may furnish a copy, or portions thereof, of a report of any examination performed by the superintendent of the performance, condition, and affairs of any service provider and any other information obtained through examination of the service provider to entities as provided in Section 5-3A-3, including the board of directors of the serviced bank, under the same terms and with the same limitations as set forth for other examination reports, data, and information under Section 5-3A-3. Additionally, the superintendent may furnish copies of his or her reports of examination, and any other information obtained through examination of the service provider, to the FFIEC, and to the board of directors of the service provider, under the same terms and with the same limitations as provided in Section 5-3A-3. §5-3A-35. (a) The superintendent may enter into agreements, which shall be deemed sole source, one vendor, and one supplier contracts under the procurement laws of this state and shall be exempt from competitive and other bid requirements, with any bank supervisory agency that has concurrent jurisdiction over a service provider to do either of the following: (1) Engage the services of the examiners of any bank supervisory agency at a reasonable rate of compensation. (2) Provide the services of the examiners of the State Banking Department to any bank supervisory agency at a reasonable rate of compensation. (b) The superintendent may enter into corrective agreements with a service provider or may issue corrective orders to a service provider if the superintendent determines the actions are necessary to ensure the safe and sound operation of a serviced bank or serviced banks or to respond to a danger, or potential danger, to the public welfare. (c) The superintendent may enter into joint examinations or joint enforcement actions with other bank supervisory agencies having concurrent jurisdiction over a service provider.

Section 3

This act shall become effective immediately following its passage and approval by the Governor, or its otherwise becoming law.