Financial Institutions

Monday, 03 October 2016

How will Bitcoin affect the financial institution industry?

Written by Rehmann Team

As online merchants increasingly accept Bitcoins as a form of payment, it’s making lawmakers and financial institution regulators nervous. Bitcoin advocates concede that while they will not replace the dollar, the euro or gold, virtual currencies will certainly be disruptive. Anthony Gallippi, co-founder and CEO of BitPay — a Bitcoin payment processing company — said, "Banks charge many fees to consumers. With Bitcoin, users can handle many of their daily payment needs themselves and avoid bank fees, so banks relying on fee revenue could be impacted the most...

Monday, 03 October 2016

Fair lending violations continue

Written by Rehmann Team

The Consumer Financial Protection Bureau’s (CFPB) Fair Lending Report, issued in May 2016, reported that in 2015 its fair lending oversight and enforcement efforts resulted in $108 million in restitution paid to consumers whose lending transactions were impacted by discriminatory practices. The CFPB report noted these among the most common violations: • 12 CFR 1002.4(a): Discrimination on a prohibited basis in a credit transaction. This rule states that “a creditor shall not make any oral or written statement, in advertising or otherwise, to applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application...

Monday, 03 October 2016

Holding information hostage: the rise of ransomware

Written by Rehmann Team

Your computer screen freezes and all you see is a pop-up message telling you you’ve been hacked, your files have been encrypted and you will have a pay a hefty fee to get a decryption key. It’s a scenario that is playing out more and more frequently across personal and enterprise networks as hackers infiltrate systems and perpetrate ransomware scams that restrict access to files or threaten permanent data destruction unless a ransom is paid. According to the FBI, when ransomware first came onto the scene, computers became infected via email attachments containing malware. The increasingly sophisticated schemes now include “drive-by” incidents where users infect their computers by simply visiting a compromised website...

Monday, 03 October 2016

Deposit insurance funding costs to decline

Written by Rehmann Team

More than nine out of 10 small financial institutions are likely to pay less for deposit insurance beginning in the current quarter, according to the Federal Deposit Insurance Corporation (FDIC). That’s because the reserve ratio —the amount in the Deposit Insurance Fund (DIF) to insured deposits — reached 1.17 percent at the end of June, the highest level in more than eight years. The ratio had been negative following the financial crisis, resulting in higher assessments...

The Department of Labor's (DOL) recent updates to salary thresholds under the Fair Labor Standards Act (FLSA) are likely to impact how and how much financial institutions pay a variety of their employees. The FLSA guarantees most U.S. workers at least the federal minimum wage for every hour they work, as well as overtime (at one and a half times their regular rates of pay) for hours they work beyond 40 in a workweek...

While no new regulatory requirements were released, the Federal Financial Institutions Examination Council’s (FFEIC) recent statement reiterates the importance of financial institutions’ active management of the risks associated with interbank messaging and wholesale payment networks, including authentication, authorization, fraud detection, and response management systems and processes. There is a sense of urgency surrounding this issue because recent cyber attacks in these areas have compromised wholesale payment environments by bypassing information security controls, fraudulently obtaining credentials to infiltrate systems, disabling security controls, and quickly transferring stolen funds across multiple jurisdictions to avoid recovery of the funds. FFEIC recommends that an institution’s leadership undertake these steps to protect vulnerable systems: Conduct ongoing information security risk assessments to incorporate new and evolving information and implement controls in response to identified risks  Ensure third-party service providers perform effective risk management, conduct regular testing of their security controls, and are contractually obligated to provide incident reports when issues arise that might impact the financial institution Perform security monitoring to ensure intrusion detection systems, firewalls and antivirus protection are up-to-date and configured properly Protect against unauthorized access by limiting the number of credentials, especially administrator accounts, and the ability to easily assign elevated privileges to access critical systems; establishing strict credential expiration periods and promptly terminating unused credentials; and conducting regular audits to review access to critical systems for both employees and contractors Implement and test controls around critical systems including limiting the number of sign-on attempts and locking accounts once thresholds are exceeded, establishing alerts when controls and passwords are changed, encrypting sensitive data and storing backed-up data offline Enhance information security awareness with mandatory training programs, including how to identify and prevent phishing attempts Participate in industry information-sharing forums such as the Financial Services Information Sharing and Analysis Center (FS-ISAC) and U.S...

Wednesday, 13 July 2016

Incentive-based compensation in focus for regulators

Written by Rehmann Team

Federal regulators released a preliminary second proposal detailing a tiered approach for institution executives' incentive-based compensation. This was done in an effort to discourage actions that may present immediate opportunities to earn incentives but open up the institution to potential material losses in the future. This has been a hot-button issue with regulators since the financial crisis when, some argue, executives and others received incentives to take excessive risks in pursuit of greater personal rewards without adequate consideration or oversight of potential pitfalls. The proposal, which does not require disclosure of compensation that is not incentive based, would be dependent on asset level (institutions with less than $1 billion in assets would be exempt)...

Out of necessity and in an effort to control costs while remaining compliant, financial institutions rely on third-party vendors for expertise and efficiency. When managed appropriately, such relationships — especially “significant” third-party relationships — can enhance competitiveness, diversify systems and strengthen safety and soundness. Effective management is so important because the responsibility for third-party activities, successes and failures ultimately rests with the institution and its leadership...

Monday, 04 April 2016

CECL debate heats up

Written by Rehmann Team

Financial Accounting Standards Board (FASB) board member Larry Smith chaired a February 2016 public meeting for financial institutions and other interested parties to express concerns about the proposed Current Expected Credit Loss (CECL) standard, such as administrative burdens of compliance, increased auditing costs, unrealistic modeling expectations and the potential impact on loan loss provision requirements. Smith opened the meeting by noting that CECL was conceived to address concerns that the incurred loss model failed to consider forward-looking information. He said that in 2005, long before the financial crisis, 10 to 15 employees from mid-sized financial institutions met with FASB because they knew loan loss provisions were too low, yet there was no accounting method allowing them to increase reserves. They wanted to use expectations to determine loan loss reserves and avoid writing loans they knew might go bad even though such loans didn’t show typical loan failure characteristics...

Monday, 04 April 2016

Longer exam cycle announced for smaller institutions

Written by Rehmann Team

The Federal Deposit Insurance Corporation (FDIC) and other federal regulatory agencies jointly adopted interim final rules to implement Section 83001 of the Fixing America's Surface Transportation Act (FAST Act). Depository institutions that meet the following criteria will qualify for an 18-month on-site exam cycle instead of a 12-month cycle: $1 billion or less in total assets, up from $500 million or less CAMELS composite rating of “1” or”2” Well capitalized, well managed with no change in control during the previous 12-month period Not subject to a formal enforcement proceeding or order The implementation of these rules — which will put approximately 600 more institutions and savings associations on the 18-month cycle, for a total of about 5,000 institutions — allows the agencies to focus resources on institutions with capital, management or other supervisory concerns. It also reduces compliance burdens and costs on small, well-capitalized and well-managed financial institutions while maintaining safety and soundness protections. The new rules are applauded by community banks that will be able to direct more resources toward serving their local communities...

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