LexisNexis Risk Solutions examines smaller lending institution fraud impact

Findings generated from a LexisNexis Risk Solutions analysis determined lending fraud financially impacts smaller banks, credit unions, and digital lenders at twice the rate of larger competitors.© Shutterstock The data and technology solutions firm’s 2019 Small and Mid-Sized Business (SMB) Lending Fraud Survey sought feedback from 134 individuals responsible for making risk and fraud assessments […]

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Findings generated from a LexisNexis Risk Solutions analysis determined lending fraud financially impacts smaller banks, credit unions, and digital lenders at twice the rate of larger competitors.

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The data and technology solutions firm’s 2019 Small and Mid-Sized Business (SMB) Lending Fraud Survey sought feedback from 134 individuals responsible for making risk and fraud assessments or decisions for SMB customers.

The analysis stemmed from the quest to better understand SMB lending frauds volume, how it is being identified and tracked, the types of fraud experienced, what’s being done to combat it and if there are differences in SMB lending fraud based on the size or type of organization.

The work showed fraud monetary losses for smaller banks amounting to 4.5 percent and 5.8 percent of overall revenue, compared to 2.9 percent for larger institutions, with fake identities, synthetic identities, cyberattacks on account creation or identity spoofing for account takeover on existing accounts serving as some of the fraud vehicles used.

“Digital lenders, in particular, are ripe for target by fraudsters since they emphasize speed and application efficiency over fraud prevention,” Ben Cutler, vice president of business risk and specialty markets at LexisNexis Risk Solutions, said. “Over the past 24 months, digital lenders alone realized a rise in fraud attacks of 8.2 percent, almost as much as large financial institutions at 8.6 percent. Given historical and expected fraud rates, it’s no surprise that digital lenders plan to increase investment in anti-fraud initiatives in 2020.”

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OCC releases bank supervision operating plan for 2020

The U.S. Office of the Comptroller of the Currency (OCC) released its bank supervision operating plan for fiscal year 2020 this week.© Shutterstock The plan provides a foundation for policy initiatives and supervisory strategies for national banks, federal savings associations, federal branches, federal agencies, and technology service providers. OCC staff members use this plan to […]

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The U.S. Office of the Comptroller of the Currency (OCC) released its bank supervision operating plan for fiscal year 2020 this week.

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The plan provides a foundation for policy initiatives and supervisory strategies for national banks, federal savings associations, federal branches, federal agencies, and technology service providers. OCC staff members use this plan to guide their supervisory priorities, planning, and resource allocations.

The FY 2020 plan focuses on several key supervisory strategies, including cybersecurity and operational resiliency, with emphasis on threat vulnerability and detection, access controls and data management, and managing third-party connections.

It will also focus on Bank Secrecy Act/anti-money laundering (BSA/AML) compliance management, with emphasis on customer due diligence and beneficial ownership; determining whether BSA/AML risk management systems match the complexity of business models and products offered; evaluating technology solutions to perform or enhance BSA/AML oversight functions; and assessing the adequacy of suspicious activity monitoring and reporting systems and processes.

Further, the plan looks at commercial and retail credit underwriting practices and oversight and control functions. It also examines strategies related to the impact of changing interest rate outlooks on bank activities and risk exposures.

Finally, the 2020 plan focuses on technological innovation and implementation; preparedness for the current expected credit losses (CECL) account standard; and the preparation for the potential phase-out of the London Interbank Offering Rate (LIBOR).

The OCC will provide updates about supervisory priorities in the coming months.

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Treasury, FHFA modify preferred stock purchase agreements with Fannie Mae, Freddie Mac

Federal authorities are making modifications to the preferred stock purchase agreements (PSPAs) with Fannie Mae and Freddie Mac.© Shutterstock Under the modifications made by the U.S. Treasury Department and the Federal Housing Finance Agency (FHFA) Fannie Mae and Freddie Mac will be allowed to maintain capital reserves of $25 billion and $20 billion, respectively. These […]

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Federal authorities are making modifications to the preferred stock purchase agreements (PSPAs) with Fannie Mae and Freddie Mac.

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Under the modifications made by the U.S. Treasury Department and the Federal Housing Finance Agency (FHFA) Fannie Mae and Freddie Mac will be allowed to maintain capital reserves of $25 billion and $20 billion, respectively. These changes will allow the government-sponsored entities to retain earnings over the $3 billion capital reserves currently permitted by their PSPAs.

“These modifications are an important step toward implementing Treasury’s recommended reforms that will define a limited role for the Federal Government in the housing finance system and protect taxpayers against future bailouts,” U.S. Treasury Secretary Steven Mnuchin said.

To compensate Treasury for the dividends that it would have received without these modifications, the Treasury’s liquidation preferences for its Fannie Mae and Freddie Mac preferred stock will gradually increase. Specifically, it will increase by the amount of the additional capital reserves until the liquidation preferences increase by $22 billion for Fannie Mae and $17 billion for Freddie Mac.

These changes were recommended in the Treasury Housing Reform Plan, which was released in September. That plan also recommended that Treasury and FHFA develop recapitalization plans for Fannie Mae and Freddie Mac after identifying and assessing the options. Further amendments to the PSPAs may result following the implementation of any recapitalization plans.

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Federal financial regulators adopt rule to increase threshold for appraisals

Federal financial regulators have adopted a rule that increases the threshold for residential real estate transactions requiring an appraisal from $250,000 to $400,000.© Shutterstock The last time the appraisal threshold was changed was in 1994. Considering the price appreciation that has occurred over time in residential real estate transactions, this rule change will provide burden […]

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Federal financial regulators have adopted a rule that increases the threshold for residential real estate transactions requiring an appraisal from $250,000 to $400,000.

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The last time the appraisal threshold was changed was in 1994. Considering the price appreciation that has occurred over time in residential real estate transactions, this rule change will provide burden relief without posing a threat to the safety and soundness of financial institutions.

For transactions that don’t meet the new appraisal requirement, the final rule requires institutions to get an evaluation to estimate the market value of real estate collateral. This is crucial because evaluations are typically not as burdensome as appraisals. Further, the evaluations have been required since the 1990s.

The final rule also incorporates the appraisal exemption for rural residential properties provided by the Economic Growth, Regulatory Relief, and Consumer Protection Act. This bill also requires evaluations for these transactions. Additionally, the final rule requires institutions to review appraisals for compliance with the Uniform Standards of Professional Appraisal Practice.

The rule has been approved by the federal regulators, including the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. The agencies have consulted with the Consumer Financial Protection Bureau (CFPB) and got the bureau’s approval for the increased threshold.

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Senate bill seeks to increase accountability of data brokers

Democratic Senators introduced a bill to increase accountability and enhance transparency on data brokers like Equifax that collect and sell personal information about consumers. © Shutterstock The Data Broker Accountability and Transparency Act would prohibit data brokers from engaging in discriminatory data use practices and give consumers the right to stop them from sharing their […]

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Democratic Senators introduced a bill to increase accountability and enhance transparency on data brokers like Equifax that collect and sell personal information about consumers.

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The Data Broker Accountability and Transparency Act would prohibit data brokers from engaging in discriminatory data use practices and give consumers the right to stop them from sharing their personal information for marketing purposes. It also requires data brokers to develop privacy and data security programs and procedures. Further, it empowers the Federal Trade Commission (FTC) to create a centralized website for consumers to view a list of data brokers and information regarding consumer rights.

“For too long, data brokers have profited off of our personal information at the expense of our privacy,” Sen. Ed Markey (D-MA), one of the bill’s sponsors, said. “Companies, which American consumers have never heard of, continue to play fast and loose with our data, and our laws have failed to keep pace with this industry’s bad behavior. As the recent Equifax settlement made clear, we need strong, enforceable rules of the road to hold data brokers accountable and empower consumers. I thank Senator Blumenthal and Senator Smith for partnering with me on the Data Broker Accountability and Transparency Act.”

Sens. Richard Blumenthal (D-CT) and Tina Smith (D-MN) also sponsored the bill.

“Companies like Equifax have gotten away with their reckless handling and selling of personal consumer information,” Blumenthal said. “Congress must put power back in the hands of American consumers. This common-sense bill ensures that all Americans have a right to know if their personal data has been exploited or contains errors, and holds data brokers accountable for their shameless privacy and security violations.”

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Sen. Bennet praises advancement of SAFE Banking Act

Sen. Michael Bennet (D-CO) recently applauded the House of Representatives’ advancement of the SAFE Banking Act of 2019, noting it addresses issues in medicinal or recreational cannabis states.© Shutterstock Bennet said the legislation, authored by Rep. Ed Perlmutter (D-CO), targets logistical and public safety problems. Currently, cannabis businesses operating under state laws have been mostly […]

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Sen. Michael Bennet (D-CO) recently applauded the House of Representatives’ advancement of the SAFE Banking Act of 2019, noting it addresses issues in medicinal or recreational cannabis states.

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Bennet said the legislation, authored by Rep. Ed Perlmutter (D-CO), targets logistical and public safety problems. Currently, cannabis businesses operating under state laws have been mostly denied access to the banking system because banks providing services can be prosecuted under federal law.

Without the ability to access bank accounts, accept credit cards or write checks, businesses must operate using large amounts of cash, creating safety risks for businesses and surrounding communities, according to proponents of the bill.

“The lack of access to banking services for marijuana businesses is a public safety issue in Colorado and across the country,” Bennet said. “This common-sense bill would allow our banking system to serve marijuana businesses the same way they serve any other legal places of business. I’m grateful to Congressman Perlmutter for his leadership in pushing this bill across the finish line. We will continue our efforts to move this bill in the Senate.”

Under the bill, federal banking regulators would be prohibited from penalizing or discouraging a bank from providing financial services to a legitimate state-sanctioned and regulated cannabis business, or an associated business. It would also prevent regulators from terminating or limiting a bank’s federal deposit insurance solely because the bank is providing services to a state-sanctioned cannabis business or associated business, or recommending or incenting a bank to halt or downgrade providing any kind of banking services to these businesses. The legislation would also stop federal banking regulators from taking any action on a loan to an owner or operator of a cannabis-related business.

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New report highlights need for business resilience

The Depository Trust & Clearing Corporation (DTCC) issued a new white paper that calls for the financial industry to make business resilience, an organization’s ability to safeguard its critical services, a priority. © Shutterstock The paper, titled Resilience First, warns that disruptions to critical business services could create market instability. It says a paradigm shift […]

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The Depository Trust & Clearing Corporation (DTCC) issued a new white paper that calls for the financial industry to make business resilience, an organization’s ability to safeguard its critical services, a priority.

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The paper, titled Resilience First, warns that disruptions to critical business services could create market instability. It says a paradigm shift is required to protect the global financial system from the significant threats posed by cyber-attacks, the rapid development and adoption of new technologies, the increased interconnectedness of the financial ecosystem, and growing industry-wide concentration risks, among other dynamics.

“With the threat of potential disruptions continuing to grow, firms can no longer afford to focus on disaster recovery, business continuity management and cybersecurity in isolation,” Dan Thieke, managing director, Business Risk & Resilience Management, said. “Resilience initiatives should look holistically at threats and aim to safeguard critical business services against a wide range of technical, physical, logical, or financial disruptions.”

DTCC, a company that provides market infrastructure for the financial services industry, said a collaborative approach to business resilience is required. Business resilience efforts should be broadened to include all relevant stakeholders and incorporate resilience into the initial design of new products and services. The paper discusses the core principles and guidelines to further resilience efforts.

“We are committed to leveraging our experience to lead the discussion on the evolution of industry-wide resilience. This is a key strategic enabler that is consistent with our mission to deliver the world’s most resilient and secure post-trade infrastructure for our clients,” Thieke said.

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Senate earmarks $2M to combat Trade Based Money Laundering

The Senate Financial Services and General Government Appropriations Committee earmarked $2 million in Trade Based Money Laundering (TBML) risk assessment funding in the FY 2020 budget. © Shutterstock The $2 million would fund a risk assessment conducted through FinCEN to analyze the threat TBML poses on our national security. TBML encompasses cartels and terrorist organizations’ […]

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The Senate Financial Services and General Government Appropriations Committee earmarked $2 million in Trade Based Money Laundering (TBML) risk assessment funding in the FY 2020 budget.

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The $2 million would fund a risk assessment conducted through FinCEN to analyze the threat TBML poses on our national security. TBML encompasses cartels and terrorist organizations’ hijacking international trade networks to transfer funds across international borders. It allows them to circumvent banks and the monitoring to which banks are subject.

“Trade-based money laundering is America’s biggest national security threat that almost no one is paying attention to. It links together drug trafficking, human trafficking, terrorism, Hezbollah, and dangerous counterfeit products,” Sen. Bill Cassidy (R-LA), who helped secure the funding, said. “In order to solve this crisis, we need to fully analyze the threat it poses to our nation. This begins the process.”

Cassidy is an expert on the subject. He spoke on an expert panel on TBML last week at a conference at George Mason University.
“Cartels and terrorists are moving billions of dollars unchecked to fund their violent organizations. Trade-based money laundering is America’s biggest national security threat that almost no one is paying attention to,” Cassidy said at the conference. “In order to solve this crisis, we need to bring it into the national conversation. This conference elevates the issue.”
Cassidy also released a white paper in September about the threat of TBML. It outlined TBML as a threat which ties together drug trafficking, terrorism, and dangerous counterfeit consumer products.

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Congress introduces bill to give “worker dividend” in stock buybacks

A bill recently introduced in Congress would require publicly-traded companies to pay out a “worker dividend” if it does a stock buyback.© Shutterstock The stock buyback is an increasing trend among corporations. They use the profits from stock buybacks to enrich shareholders, but the bill’s authors say they should also be used to raise wages […]

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A bill recently introduced in Congress would require publicly-traded companies to pay out a “worker dividend” if it does a stock buyback.

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The stock buyback is an increasing trend among corporations. They use the profits from stock buybacks to enrich shareholders, but the bill’s authors say they should also be used to raise wages for workers. The bill – introduced by Rep. Joe Kennedy (D-MA and Sens. Cory Booker (D-NJ and Bob Casey (D-PA) – said the if companies do a buyback, they must pay out a commensurate sum to all of its employees — a “worker dividend.”

“A broken economic system that rewards corporate profits at the expense of working people only widens the inequality plaguing every corner of this nation. Any company showering shareholders with buybacks should be legally obligated to share their wealth with the workers who generate it. With the leadership of Senator Booker and Senator Casey, we can pass the Worker Dividend Act and rebalance the economic scales in this country,” Kennedy said.

Companies on the S&P 500 dedicated 91 percent of their total earnings to stock buybacks and corporate dividends between 2003 and 2012, the lawmakers said. That left just nine percent for raises for workers and other workforce investments. Following the 2017 Tax Cuts and Jobs Act, stock buybacks surged to record highs of $1 trillion in 2018. So far in 2019, more than $465 billion in stock buybacks have been announced. Stock buybacks continue to outpace worker bonuses and raises.

“While corporate profits are at their highest level in 90 years, wages for working families have been stagnant for more than four decades, and workers’ slice of the pie continues to shrink. A company that has the profits to reward its shareholders should also reward the employees who are helping create those profits,” Booker said. “This legislation has a simple premise: when companies do well, workers should do well. There’s no reason that a country as rich and as powerful as ours should have to choose between great wealth for the few, like corporate executives and shareholders, and great opportunity for all of its citizens, including its workers.”

The Worker Dividend Act would apply to all publicly-traded companies with at least $250 million in earnings. The “worker dividend” would be calculated as the lesser between the total amount of that year’s stock buybacks and 50 percent of the company’s profits above $250 million. That total obligation would then be distributed equally to each of the company’s employees.

“The 2017 GOP tax bill is just another tale of how the rich get richer. This law was sold to American workers as a ‘middle-class miracle,’ and yet it was actually a huge giveaway to large corporations who used their tax cut to engage in unprecedented corporate stock buybacks,” Casey said. “I am happy to join Senator Booker in our continued effort to put America’s workers first. I hope my Republican colleagues will join us.”

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SEC establishes new reporting requirements for security-based swap dealers

The Securities and Exchange Commission (SEC) is setting new recordkeeping and reporting requirements for security-based swap dealers. © Shutterstock Under the updated rules, companies will be required to create and retain fundamental business records to document and track their operations. This will help the SEC ability monitor them for compliance and reduce risk to the […]

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The Securities and Exchange Commission (SEC) is setting new recordkeeping and reporting requirements for security-based swap dealers.

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Under the updated rules, companies will be required to create and retain fundamental business records to document and track their operations. This will help the SEC ability monitor them for compliance and reduce risk to the market. The amendments come under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

“I once again would like to thank Commissioner Peirce for her excellent leadership of our efforts to stand up the Dodd-Frank Title VII regulatory regime. These rules will help the Commission ensure compliance with rules designed to promote financial responsibility and investor protection,” SEC Chairman Jay Clayton said. “Also, I want to thank our colleagues at the SEC, including in the Division of Trading and Markets and the Division of Economic Risk and Analysis, as well as CFTC Chairman Tarbert, Commissioner Quintenz and their colleagues, for their efforts and commitments to inter-agency cooperation.”

Specifically, these rules establish record-making requirements for security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs). They also set record preservation requirements for SBSDs and MSBSPs. Further, they establish periodic reporting and annual audit requirements for SBSDs and MSBSPs and set early warning notification requirements. In addition, they put in place security count requirements for SBSDs that are not registered as broker-dealers and amend the SEC’s existing cross-border rule to provide a means to request substituted compliance. Finally, they amend a rule that permits certain SBSDs that are registered as swap dealers to comply with CFTC requirements in place of Commission requirements.

“With these rules that we finalized, the Commission has taken another important step toward the registration and regulation of security-based swap dealers and major security-based swap participants and the full implementation of the regulatory framework mandated by Congress in Title VII of the Dodd-Frank Act. These rules reflect the hard work of our staff in Trading and Markets and DERA and are the product of ongoing close cooperation with our colleagues at the CFTC, including Chairman Tarbert and Commissioner Quintenz,” SEC Commissioner Hester Peirce said. “I am particularly pleased to see the alternative compliance mechanisms built into the final rule.”

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