Auditor Report

Pledging Credit Cards to the

Federal Reserve Bank of Boston

5/4/2020

Citizens Bank

Introduction

I audited the Consumers Controller Group on their procedure of pledging Credit Cards to the Federal Reserve Bank of Boston (FRBB) in the Division of Citizens Bank. While performing this audit I was given guidance through the procedure to perform my report correctly. I spent days to break down the procedure and to account for the internal controls.

Procedure

The procedure under examination is pledging Credit Cards to the FRBB. The purpose of this procedure is determining the eligible outstanding Consumer Credit Card balances that can be pledged to the FRBB. All Consumer Credit Cards are stored on Total Systems (TSYS). An automated process called SAS is run on the first business day of the month for balances as of the prior month end. SAS outputs a summary report listing the interest receivable balance on credit cards, then predetermined exclusions based on Federal Guidelines of acceptability, to come down to a final net pledge amount with a supporting loan level detail file. Consumers Controller reviews various exclusion criteria such as FICO scores of less than 660 or equal to 999 meaning they must have a good credit score, or not be eligible to pledge. The Controllers Group also ensures that they are not pledging any REG O accounts, which is a loan to officers of a bank or their family members. Another validation is to ensure no loan is pledged to the FRBB that is over their credit limit. Once all validations are complete, a manager within the Controller’s group will approve the pledge. An e-email is then sent to Treasury for final approval prior to upload. Once approval has been given, the file is uploaded to FRBB’s secure website using two-factor authentication. The Consumer Controllers Group validates that the final pledge balances at month end do not change by 10% by the middle of the following month or the FRBB would require the group to be resubmit the pledge with the new numbers before the next cycle.

Overview

The Borrower-in-Custody (BIC) program allows depository institutions to pledge loans to the Federal Reserve Bank of Boston as collateral for Payment System Risk (PSR) purposes and Discount Window advances while retaining possession of the loan documentation. There are also pledges to Auto and Credit Cards to the Federal Reserve Bank of Boston on a month basis. The entities that are affected by this procedure are all part-time/ full-time CBNA colleagues. Consumer operations, Consumer Financial Reporting, Regulatory Reporting, and Treasury are also involved in this procedure and this procedure is performed monthly. These are personal credit card accounts that are pledged to the (FRBB) for discount window collateral borrowing.

Recommendations

Once you pledge something it cannot be pledged or sold to another bank, how do you know which loans are pledged to the Fed and which loans are not? There should be a system identifier on TSYS indicating which loan are pledged so they will not be sold to another bank. This is a FRBB Guideline and if it is already being performed make sure it is in your procedure for the next calendar year. I also realized your procedure was last approved 2/20/19 and should be updated each calendar year to make note of additional changes whether significant or minor.

Thank You Letter

I would like to personally thank you for having our Audit team look over your Credit Card pledging procedure and internal controls of the Consumers Controller Group. We have reviewed the path you take to achieve your process and commend you on the organization of your procedure and understand the steps taken to pledge this information. Regarding the recommendations, please take note of my suggestions listed to be in compliance with the FRBB guidelines. I appreciate the corporation and information provided when performing this audit and hope to work with you again.
Sincerely,
4