Retail Payments Risk Forum Collaborate to Fight Payment Fraud

Retail Payments Risk Forum Collaborates to Fight Payments Fraud
 

The Atlanta Federal Reserve Bank’s anti-fraud
cooperative is designed to bring together thought leaders in the
payments space to improve security. (from the Portals and Rails Blog)  Portals and Rails, a blog sponsored by the Retail Payments Risk Forum
of the Federal Reserve Bank of Atlanta, is intended to foster dialogue
on emerging risks in retail payment systems and enhance collaborative
efforts to improve risk detection and mitigation. We encourage your
active participation in Portals and Rails and look forward to
collaborating with you.

Collaboration to address payments risks and fraud

In the world of payments, all players share an interest in seeing
that risks are detected and mitigated quickly and effectively. However,
when threats emerge, is it everyone for themselves? How does the
variety of interests and goals among all the players converge? In a
private marketplace mixed with government actors, how can we work
better together?




Participants at a 2008 conference hosted by the Retail Payments Risk Forum discussed these issues

and described the challenges and potential solutions. A year later, the findings of this forum are worth revisiting.




Information sharing
Real or perceived
information-sharing limitations among financial institutions,
regulators, law enforcement, and others can substantially impede
addressing retail payments risks on a timely and effective basis.
Examples include inconsistent or incomplete payments data, varying
success levels of intra- and interagency collaborations, varied and
overlapping jurisdictions, an incomplete network of memoranda of
understanding (MOUs), privacy restrictions, perceived barriers beyond
legal restrictions, competitive interests, costs, and trust.
Suggestions for improvement in this area focused on:

• collection, consistency, and commonality of payments
  data, better understanding of its utility, and analysis tools. While
  data needs vary, a first step would be to focus on data elements of
  shared interest. A working group could facilitate ongoing payments data
  compilation and analysis efforts;


• formal and informal dialogue among various agencies and others, including simple measures such as shared contact lists;


• development
  of a “matrix” of various roles/responsibilities/information sources for
  shared use to facilitate more timely location of information and
  expertise available; and


• a more systematic, organized mechanism for information
  sharing, perhaps by establishing “brokers” for relevant information
  such as payments data.

Policing bad actors


Many noted that communication about bad actors is often ad hoc
and that information is too widely dispersed to be useful and timely.
Individual agency efforts, published enforcement actions, SAR filings,
interbank collaborations, and industry self-regulatory efforts, while
all worthwhile, have not fully promoted effective information gathering
and sharing among all the parties who can have an impact. Suggestions
for improvement in this area included:

• better understanding of risks across payment
  channels, both for front-end access point(s) and back-end processing,
  to mitigate fraudster arbitrage of vulnerabilities;


• publishing enforcement actions and related settlements more effectively as a deterrent;
  


• establishing a central “negative list” or “watch list” of bad actors;
  


• extending
  registration requirements for third parties participating in payments
  networks beyond existing targeted voluntary efforts;


• strengthening and clarifying regulatory guidance, such as that for counterfeit checks and consumer account statements;


• better educating consumers and banks regarding common issues;


• a more direct means of compensating victims;


• mining specific activity reports and other existing agency databases such as consumer complaints data; and


• potential new SEC codes within ACH to better track risks.

Collaboration

Participants identified collaborative efforts to help detect and/or
mitigate retail payments risk issues and identified benefits and gaps.
Examples included bank regulatory groups (intra- and interagency),
national and regional law enforcement partnerships, interstate
collaboration, federal-state working collaborations, joint
investigative task forces, examination- or case-driven ad hoc efforts, and industry data-sharing efforts. Potential avenues for improved collaborative action included:

• a law enforcement/regulatory payments fraud working group;


• a virtual collaborative forum via Web sites, e-mail lists, or regular phone calls;


• greater attention paid to requests for comments on proposed NACHA rules;


• examiner and law enforcement training opportunities;


• participation in and/or support for industry database sharing efforts;


• engagement with industry groups to improve best practices;


• a Web-based resource for consumers supported by all (“fraud.gov”);


• implementation of further MOUs among agencies; and


• efforts to identify fraud patterns across agencies, such as the federal government’s Eliminating Improper Payments Initiative.

Substantive areas of concern

Participants were asked to describe substantive retail payments risk
issues that keep them up at night. Some common themes emerged,
including:

• strengthening the oversight of third-party payments processors and others not covered by the Bank Service Company Act;


• quantifying and better managing the misuse of remotely created checks;


• understanding and mitigating risks associated with “cross-channel” fraud;


• 
  “Know Your Customers’ Customer” due diligence, compliance, and
  associated risks and potential liabilities for fraud
  detection/mitigation purposes;


• establishing a common means of redress for consumers regardless of the payment channel; and


• improving the clarity of consumer account statements by instituting standards and reducing jargon.

Progress has been made on a number of these ideas in the past year,
including the formation of new working groups and other collaborations.
The Retail Payments Risk Forum continues to explore opportunities and
implement solutions to help foster collaborative action to address
these and other industry concerns. Your input in the form of comments
to Portals and Rails on these or other topics is welcomed!



By Clifford S. Stanford, assistant vice president and director of the Retail Payments Risk Forum at the Atlanta Fed.