Samantha: Hello, this is Samantha Shares.
This episode covers
A portion of The O C C's Semiannual risk perspective Special topic
Increased external fraud activity targeting the federal banking system.
The following is an audio version of that portion of the report.
This podcast is educational and is not legal advice.
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And now the letter.
The special topic focuses on the increasing trend in external
fraud activity targeting consumers and the federal banking system.
The frequency of both traditional and novel, more sophisticated fraud
activities targeting customers and banks continues to increase.
Banks should maintain sound fraud risk management practices through prudent
controls and appropriate fraud monitoring capabilities to identify, investigate,
mitigate, and report fraudulent activity.
Banks can also support their customers by providing educational information
about trending fraud activities and ways to protect themselves.
Criminals continue to exploit traditional payment methods through
check and wire transfer schemes.
The Financial Crimes Enforcement Network (F I N C E N) September 2024
"Financial Trend Analysis" analyzed threat patterns and trend information on
mail theft-related check fraud incidents over a six-month period in mid-2023.
The report noted that financial institutions filed 15,417 B S A reports
on mail theft-related check fraud, 13,618 (88 percent) of which were filed by banks.
It described several types of check fraud such as bad actors altering
stolen check payees and amounts, using the stolen check to create counterfeit
checks, fraudulently signing the check, and selling the check or its identifying
information on dark web marketplaces or encrypted social media platforms.
Furthermore, the O C C's Customer Assistance Group observed an
increase in the number of check fraud-related complaints submitted
by consumers over the past year.
Federal banking system-related wire transfer complaints that consumers
submitted to the Customer Assistance Group reflect an increasing trend.
For wire transfer schemes, the fraudster often poses as a trusted
business, government agency, or even a bank employee, fabricating scenarios
that require immediate action and convincing, with urgency, victims to
wire money to a fraudster's account.
In most cases, once the wire transfer is complete, the funds cannot be retrieved.
While artificial intelligence (A I) can enhance fraud risk management
capabilities, reduce costs, and improve efficiency, this and other
new technologies are also being used to enable increasingly more
sophisticated and frequent fraud tactics.
Fraudsters could use A I to implement sophisticated frauds by digitally
altering voices, biometric systems, or images (also known as "deepfakes"), or
to facilitate social engineering schemes, identity theft, and impersonation of a
trusted business or government agency.
For example, deepfakes through voice replication have been used to perpetrate
fraud by tricking voice biometric systems or by convincing a victim they
are dealing with someone they know and trust, such as a family member.
Increasing product and service digitization can also heighten fraud risk,
including fraud targeting peer-to-peer (P2P) and other fast payment platforms.
P2P payment platforms can provide enhanced capabilities and convenience to consumers
and other users for managing payments.
However, criminals also have exploited the faster, more streamlined payment
capabilities and the irreversible and irrevocable nature of these payments.
Effective fraud risk management includes appropriate internal controls,
such as authentication, customer identification and verification
processes, fraud monitoring, and open lines of communication between
bank departments responsible for researching unusual activities.
It is critical for banks to promptly identify, investigate,
and resolve suspicious activities and potential fraudulent concerns.
Banks should also continue to promptly identify, investigate, report, and
resolve fraud concerns in accordance with applicable laws and regulations, including
the B S A, Expedited Funds Availability Act (Regulation C C) and Electronic
Fund Transfer Act (Regulation E).
Recent increases in the volume of fraud cases have led to heightened
unfair or deceptive acts or practices (U D A P) risk as some banks
may take prolonged timeframes to complete investigations or implement
broad account access limitations, preventing customers---including
those who are not victims of fraud--- from accessing their funds.
If banks on either side of the transaction do not complete
investigations expeditiously, customers may not have access to funds for
extended periods of time, which may create financial hardship for them.
Banks can continue to support customers by providing information about scam
and fraud trends and education of potential preventative measures.
For example, to address the prevalence of text messaging and bank impostor
scams, it can be beneficial to inform customers about how the bank will
contact its customers regarding potential fraudulent transactions, as well as the
strengths and limitations of various authentication methods and how to
identify potential fraudulent schemes.
Banks can also develop policies and procedures regarding what and how to
communicate with customers when the bank determines that account access should
be limited, taking care not to reveal the existence of any suspicious activity
report (S A R) filing, and ensuring that the communication is otherwise consistent
with safe and sound banking practices.
Communications can provide critical information to customers
seeking to access their funds.
In addition, staff can be trained to identify and respond to customers seeking
to conduct unusual transactions that have signs of fraud, such as a large withdrawal
or wire transfer that may be outside of a customer's usual transaction habits.
Employee training may also include identifying red flags for different types
of financial exploitation, providing proactive approaches to detecting and
preventing elder financial exploitation, and detailing actions for employees
to take when they have concerns.
When multiple departments are responsible for researching unusual account activities
across functions such as B S A compliance, fraud prevention, consumer protection,
and open lines of communication between the bank's departments are
important and may result in enhanced coordination and expedited resolution.
This concludes the fraud portion of this report.
If your Credit union could use assistance with your exam, reach out to Mark Treichel
on LinkedIn, or at mark Treichel dot com.
This is Samantha Shares and we Thank you for listening.