review of ffiec guidance, customer agreements & aml issues · ─ intent is to provide overview...

Oct

ober

18,

201

3 Presented by: Tom Fox, Schwartz & Ballen, LLP

ECCHOInsights 11:00 AM Eastern

Consumer RDC Products: Review of FFIEC Guidance,

Customer Agreements & AML Issues

Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO)

DISCLAIMER This course provides information about the legal and rules framework for

check image exchange. Responsibility for compliance with image exchange rules and/or legal, operational and regulatory requirements applicable to check image exchange remains at all times with the financial institution participating in check image exchange and/or the individual or company using a check image exchange service. This presentation and the information contained herein is not intended as legal or compliance advice or recommendation to any person or company.

This document could include technical inaccuracies or typographical errors

and individual users are responsible for verifying any information found in this presentation and related “live” webinar or webinar playback.

Financial institutions should consult with their legal counsel regarding legal

and operational requirements applicable to any check image exchange program they may offer or in which they participate.

2


Outline of Today’s Presentation • Purpose and Goals of Presentation • Brief Overview of RDC Products • Sources for Federal Supervisory Requirements Regarding RDC • How FFIEC Supervisory Guidance is Applied to Banks • High Level Overview of FFIEC Supervisory Requirements For RDC

Services Generally • Detailed Review of FFIEC Supervisory Requirements for Bank-Customer

Agreements For RDC • Comparison of Bank-Customer Agreements for RDC with

Smartphone/Mobile

• Review of AML Enforcement Orders involving RDC

3


Purpose and Goals of Presentation • Provide high level review of FFIEC supervisory

requirements for consumer RDC ─ Intent is to provide overview and context for supervisory requirements for

RDC ─ Explain how FFIEC guidance is applied to banks ─ Presentation will not do deep dive on all supervisory and legal

requirements for consumer RDC

• Provide in-depth review of supervisory requirements for bank-customer agreements

• Review and compare set of bank agreements for RDC smart-phone product ─ See how banks have implemented supervisory requirements into specific

customer agreements ─ See other variations in approach to legal/contractual terms ─ Identify some product/risk reduction variations (such as retention periods)

4


Evolution of Remote Deposit Capture

• RDC products and target customers continue to develop

• Financial Services Industry started with offering RDC to large commercial customers ─ Lockbox type payments ─ Bank-provided scanning equipment

• RDC quickly migrated to small business customers

• Banks initially allowed consumer remote deposit capture via scanner and personal computer

5


Evolution of Remote Deposit Capture

• Now RDC via Mobile Device/Smartphone is the next wave

• Fast adoption of Mobile RDC over the last two years ─ Based on informal review, approximately 18 of the top 20 largest

banks in the U.S. now offer Mobile RDC ─ Also being offered by broker dealers and prepaid card issuers

6

Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO)

• Supervisory Guidance For RDC

Part I


Sources for Supervisory Requirements for RDC

• FFIEC Supervisory Guidance – “Risk Management of Remote Deposit Capture” issued on January 14, 2009 ─ Internet link: http://www.ffiec.gov/pdf/pr011409_rdc_guidance.pdf

• FFIEC IT Handbook – “Retail Payment Systems” ─ Used by FFIEC and other Banking Agency Examiners ─ Internet link: http://ithandbook.ffiec.gov/it-booklets/retail-payment-

systems.aspx

• FFIEC Bank Secrecy Act/Anti-Money Laundering Exam procedures ─ Internet link: http://www.ffiec.gov/bsa_aml_infobase/default.htm ─ (Not discussed on today’s call. Noted for reference purposes)

• Recent OCC AML Enforcement Actions relating to RDC deposits (AML issues only) ─ http://apps.occ.gov/EnforcementActions/ ─ Discussed in later section of presentation

8

http://www.ffiec.gov/pdf/pr011409_rdc_guidance.pdf

http://ithandbook.ffiec.gov/it-booklets/retail-payment-systems.aspx







http://www.ffiec.gov/bsa_aml_infobase/default.htm

http://apps.occ.gov/EnforcementActions/


How FFIEC Guidance Regarding RDC is Applied to Banks

• FFIEC supervisory guidance is issued by FFIEC; created jointly by the federal bank regulatory agencies

• Guidance is administered/enforced under the supervisory authority of the agencies, and is not itself a “regulation”

• Guidance is administered and enforced in the context of the federal bank regulatory examination of banks and other chartered financial institutions

• Some state banking departments also may informally use FFIEC Guidance when examining state banks or imposing requirements on state banks.

• FFIEC Handbook sets forth exam procedures for use by federal bank regulators when conducting supervisory exams of a Bank’s RDC program

9


How FFIEC Guidance Regarding RDC is Applied to Banks

• FFIEC Handbook provides more detail than the FFEIC Supervisory Guidance

• FFIEC Supervisory Guidance and FFIEC Handbook focus on general areas of risk concerns with RDC that FFIEC expects Banks to have considered and addressed.

• FFIEC does not provide specific standards or specific operational/technical/legal requirements for a Bank’s RDC programs

`

• Banks can have different approaches to how they address the risk categories identified by the FFIEC ─ Approach based on the Bank’s particular business model,

customer types, RDC products and technology, etc. 10


High Level Summary of FFIEC Supervisory Guidance For RDC

Risk Assessment of RDC Products

• Bank’s identification and assessment of legal, compliance, reputation, and operational risks associated with RDC

• This assessment can vary by: ─ Size and complexity of the financial institution ─ Relative scale and impact of RDC to overall activities

• Two Main Aspects of Risk Assessment: 1. Legal and Compliance Risk – Bank’s identification and assessment of

exposure to legal and compliance risks related to RDC • Risks under Check 21, Reg CC, clearinghouse rules, customer agreements,

vendor agreements and other applicable law 2. Operational Risks -- Bank’s understanding operational risks

• Must ensure that appropriate policies, procedures, and other controls are in place to mitigate them

11


High Level Summary of FFIEC Supervisory Guidance For RDC

Risk Management -- Mitigation and Controls for RDC Product • FFIEC Supervisory guidance requires Bank to have adopted risk mitigation

steps and controls to mitigate risks from risk assessment of its RDC program

• Specified areas for risk mitigation and control are: ─ Customer Due Diligence and Suitability ─ Vendor Due Diligence ─ RDC training for Customers ─ Customer Contractual Terms

Mobile RDC and the FFIEC Guidance • The 2009 FFIEC Supervisory Guidance was adopted before

smartphone/mobile RDC was operating on a large scale

• No unique provisions in the FFIEC Supervisory Guidance for smartphone RDC

12


Customer Contractual Issues -- FFIEC Supervisory Guidance

• FFIEC Supervisory Guidance identifies 12 topical areas for risk mitigation in customer agreements

• List is not meant to identify all potential topics for customer agreement

• These topical areas are: 1. Roles and responsibilities of the customer and bank, including terms

regarding sale/lease of RDC equipment 2. Handling and record retention procedures for the information in RDC

• Includes physical and logical security expectations for access, storage, and disposal of deposit items

3. Types of items that may be transmitted to bank 4. Processes and procedures that the customer must follow

• Including processes related to image quality

13


Customer Contractual Issues -- FFIEC Supervisory Guidance

5. RDC customers obligation to provide imaged items (or original documents) to facilitate investigations or to resolve disputes ─ For example, images to resolve unusual transactions or poor quality transmissions

6. Periodic audits of the RDC process at client, including the IT infrastructure

7. Performance standards for the financial institution and the customer

8. Allocation of liability, warranties, indemnification, and dispute resolution

9. Funds availability, collateral, and collected funds requirements

10. Governing laws, regulations, and rules

11. Authority of the bank to mandate specific internal controls at the customer’s locations, audit customer operations, or request additional customer information

12. Authority of the bank to terminate the RDC relationship 14


Customer Contractual Issues -- FFIEC Handbook Guidance

• FFIEC Handbook expands on the issues identified in the FFIEC Supervisory Guidance.

• Additional customer agreement issues: 1. Operational considerations relevant to traditional deposit

processing 2. Reject/return requirements for deposited images 3. Establishment of deposit limits and overdraft limits 4. Business continuity planning requirements 5. Limiting high-risk customers to one account for RDC

15

Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO)

• Review of Mobile Phone RDC • Customer Agreements

Part II


Review of Bank Customer Agreements for Mobile RDC

• Reviewed 13 financial institutions’ Mobile RDC agreements ─ Includes large banks, regional banks, and community banks

• Review of Mobile RDC agreements serves number of purposes: ─ See different business product features/limits for Mobile RDC ─ Illustrate the legal and risk issues associated with Mobile RDC in

general ─ Understand how banks have translated Mobile RDC risk and legal

compliance issues into the customer terms of service ─ See how banks have implemented customer contractual required topics

set forth in 2009 FFIEC Guidance – “Risk Management of Remote Deposit Capture”

17

Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO)

• Limitation on review: ─ We did not review additional terms that may be displayed to

customer within the smartphone user interface

─ We did not review terms of Banks’ DDA agreements that also may be applicable to their Mobile RDC services

─ For example, account agreement usually includes general warranties and indemnification for all bank services.

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Issues with RDC Agreement Presentation To Consumer • Range of approaches among banks as to how T&Cs for RDC:

– are presented to customers – are subject to customer agreement

• About 50 percent of reviewed banks have RDC T&Cs in consumer

account booklet – Many of these banks also display RDC T&C in the mobile phone app itself – Customers consent to account booklet in signature card or other account

opening documentation – Some banks also obtain customer agreement to RDC T&C directly in the

mobile phone app • A number of banks display T&Cs in the RDC app itself ONLY

– RDC T&Cs are not in customer account booklet – Sometimes RDC T&Cs are not on bank’s website (but the account booklet is) – Some banks do not allow RDC T&Cs in mobile app to be emailed out or

saved off the mobile app – Banks are obtaining consumer consent to the RDC T&Cs only in mobile app

itself

19



Ineligible Checks for Mobile RDC

• Majority of the surveyed Banks list all categories of items ineligible for image deposit ─ Customers may find it easier to understand listed out ineligible

items

• Minority of surveyed Banks define universe of “eligible items” by reference to Regulation CC and Check 21 ─ But do not list individual categories ─ Customers may not understand what is and is not a “check” under

Regulation CC

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• Majority of surveyed Banks exclude deposit of items where depositor is not the payee on the item. ─ Not a result of check image rules eligibility ─ Reduces risk that item may be deposited a second time after RDC

deposit ─ Reduces risk that item is stolen or a copy of a real check ─ Reduces number of parties that have interest in check that could

make claim relating to payment of image ─ Reduces risk of missing endorsement

21



• Majority of surveyed Banks exclude returned items from redeposit with Mobile RDC ─ A bank needs to consider as a practical and operational matter

how its customer will redeposit returned images ─ By branch? By mail? By RDC again, if ok’d by customer service

rep? ─ Customer services and branch personnel will need to be trained

to handle these items and inquiries on these items from customers

• A number of surveyed Banks exclude deposit of items that do not originate from paper checks. ─ Such items are not eligible for exchange under check image

exchange rules

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Bank A

Bank B

Bank C

Bank D

Bank E

Bank F

Bank G

Bank H

Bank I

Bank J

Bank K

Bank L

Bank M

Checks payable to person other than depositor

Checks drawn by depositor on same account or other accounts controlled by depositor

Checks payable to “cash”

Checks known or suspected to be fraudulent/not authorized

Checks known or suspected to be altered or “IRREGULAR”

Substitute checks

Items that are not “checks” under Reg. CC

Previously deposited, cashed or returned

Checks drawn on foreign banks

Checks subject to stop pay

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CHECKS NOT PERMISSIBLE FOR IMAGE DEPOSIT BY MOBILE RDC (Slide 1)


Bank A

Bank B

Bank C

Bank D

Bank E

Bank F

Bank G

Bank H

Bank I

Bank J

Bank K

Bank L

Bank M

Remotely Created Checks (RCC)

Items that do not bear signature of drawer

Undated checks Checks in foreign currency

Checks dated more than 6 months ago

Checks not acceptable under account agreement

Checks prohibited by, or received in violation of law

Images not created from original paper check (sometimes expressed as warranty to original item)

Savings Bonds Money orders Cashier’s checks Travelers Checks

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CHECKS NOT PERMISSIBLE FOR IMAGE DEPOSIT BY MOBILE RDC (Slide 2)


Depositor Processing Requirements – Restrictive Endorsement

• Most of surveyed Banks require some form of restrictive endorsement of the original check ─ Seven Banks require reference to “For Deposit only” ─ Four Banks require name of BOFD bank ─ Three Banks require account number ─ One Bank requires reference to “Mobile” Deposit

─ Noted decline over last year on this item ─ Not clear if Banks review some/all/none of incoming images to

see if endorsement is placed on the item

• Restrictive endorsement is not required as matter of payments rule

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• Restrictive endorsement puts subsequent holders of paper check on notice that item has been previously deposited

• None of agreements require depositor to “frank” the item or mark it as VOID, at time of deposit

• Banks may want to process the original paper check if image collection fails

26

Depositor Processing Requirements – Restrictive Endorsement


Customer Endorsement Bank A For Deposit Only to [Name of Bank]

Bank B For Deposit Only

Bank C For [Name of Bank] check deposit only [Account #]

Bank D For Deposit Only [Account #]

Bank E Not specified in T&Cs

Bank F For [Name of Bank] Mobile Deposit Service only

Bank G Not specified in T&Cs

Bank H Not specified in T&Cs

Bank I For Deposit Only to [Name of Bank]

Bank J Not specified in T&Cs

Bank K Not specified in T&Cs

Bank L For Deposit Only to [Name of Bank] [Account #]

Bank M Not specified in T&Cs

27

Customer Endorsement


Depositor Processing Requirements --Transaction Limits

• Most of the surveyed Banks impose dollar transaction limits on daily and monthly deposits ─ Banks retain flexibility to adjust dollar amounts based on customer risk

• Dollar amount limits reduce Bank’s risk of loss in event of fraud or duplicate presentment of items

• Banks need time to develop experience with fraud and other losses

of new deposit channel for checks • Appears that some of surveyed Banks may set different limits for

depositor within the user interface ─ For example, based on customer due diligence and risk factors

28

Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) 29

Deposit Limits Deposit Limits

Bank A Daily Limit of $1000; Rolling 30 day limit of $3000 Daily Limit of $500; Rolling 30 day limit of $1500 (new customers)

Bank B Daily Limit of $2000; Rolling 30 day limit of $5000

Bank C Not in T&Cs. Provided in interface.

Bank D Daily Limit of $1000; Rolling 30 day limit of $3000

Bank E Limit of $2,000 per check and $6,000 per month Limit of $1,000 per check and $3,000 per month (new customers) (Displayed in FAQ only)

Bank F Not in T&Cs. Provided in interface.

Bank G Not specified in T&Cs

Bank H Not in T&Cs. Bank reserves right to impose limits.

Bank I Not in T&Cs. Bank reserves right to impose limits.

Bank J Not in T&Cs. Bank reserves right to impose limits.

Bank K Check limit of $2500 Daily Limit of $2500 Rolling 10 day limit of $5000

Bank L Not in T&Cs. Bank reserves right to impose limits.

Bank M Not in T&Cs. Bank reserves right to impose limits.


Depositor Processing Requirements – Retention Time Periods

• Among the surveyed Banks there is range of retention periods for original check ─ From a few days (when deposit is confirmed) to two months

• Difference in time periods may reflect different internal systems at Banks ─ For example, could reflect a bank’s belief that its system’s

image quality edits assure the Bank it will be able to print a substitute check if needed subsequently

• Longer retention period may protect the Bank in the event of failed image deposit or warranty claim.

30


Depositor Processing Requirements – Retention Time Periods

• But the longer depositor retains the original check, the higher the risk that check can be re-deposited or lost/stolen

• Bank experience with RDC over time could result in changes to these retention periods

• Majority of banks are silent on how paper check destruction should occur at end of retention period ─ Two survey banks require both marking “Void” and shredding

31


Retain And Then Destroy Original Check: Bank A Upon notice from Bank of image receipt

Bank B Not specified in T&C

Bank C 60 days from when funds are credited to account

Bank D 30 days from when image is transmitted

Bank E 10 days from when image is transmitted

Bank F 30 days from notice from Bank of image receipt

Bank G Minimum of 5 days and max of 14 days from when image is transmitted

Bank H Upon notice from Bank of credit of funds to account

Bank I Upon notice from Bank of image receipt

Bank J Upon receipt of periodic account statement reflecting credit to account

Bank K 30 days from notice from Bank of image receipt

Bank L Upon notice from Bank of credit of funds to account

Bank M 14 days from notice from Bank of image receipt

32

Retain / Then Destroy Original Check


Depositor Processing Requirements – Redeposit of Image or Original Item

• A few of surveyed Banks do not allow redeposit of returned item with Mobile RDC. -- Many survey agreements are silent on topic.

• Banks take different approaches on how to re-deposit a returned item outside of Mobile RDC. ─ One of the account agreements states that customer should redeposit

the substitute check, and not the original paper item ─ Other account agreement is silent as to whether customer should

deposit the original check or the substitute returned check

• Different approaches to re-deposit may reflect that not all surveyed Banks want to print a substitute check to deliver to the customer ─ May be lower cost/operationally simpler to tell customer to re-deposit the

original paper?

33


Depositor Processing Requirements – Redeposit of Image or Original Item

• Re-deposit of the substitute check by customer may be preferable, as it maintains a record of the prior presentment and return of the item ─ Payment rules/laws do not mandate an approach to re-deposit ─ Paying bank may find information of earlier presentment useful

• Branch personnel may have to be educated to accept to re-deposit substitute checks from their customers over the counter.

34


How Depositor Should Handle Returned Item Bank A Redeposit item through branch. Contact customer service.

Bank B No redeposit through Mobile RDC.

Bank C Redeposit substitute check at branch location. Do not redeposit original item.

Bank D No redeposit through Mobile RDC. Not addressed

Bank E Not addressed

Bank F Not addressed

Bank G Redeposit payer item with Bank

Bank H Not addressed

Bank I Not addressed

Bank J Redeposit payer item with Bank

Bank K Not addressed

Bank L No redeposit through Mobile RDC

Bank M Will return image or an IRD

35

How Depositor Should Handle Return Item


Legal Status Matters – Check Image as Check

• Majority of surveyed Banks’ agreements either: ─ expressly make UCC 4 applicable to check Image; and/or ─ state that check image is legal equivalent of the original paper

check

• Both provisions support bank in handling the check image the same as the paper check: ─ under account agreement that has terms which apply to paper

“check” deposits ─ under check law generally

• Almost half of the agreements expressly authorize the collection of the check as an image

36


CHECK IMAGE LEGAL STATUS MATTERS

Bank A

Bank B

Bank C

Bank D

Bank E

Bank F

Bank G

Bank H

Bank I

Bank J

Bank K

Bank L

Bank M

Application of the UCC to the check image

and/or

Image is legal equivalent to paper check



Image is “item” under UCC 4




Same warranties as paper checks apply



UCC warranties apply

Application of Regulation E and EFTA to deposit

(For consumer accounts

only) Authorization to process as image

Authorization to process as photocopy

If BOFD cannot process image

Authorization to process as ACH

If BOFD cannot process image

37


Legal Status Matters – Application of Regulation CC Funds Availability

• Half of surveyed Bank’s agreements state Reg CC’s funds availability rules are not applicable to deposit of the check image. ─ Other half surveyed Banks are silent on issue

• Bank are not legally obligated to provide funds availability in accordance with paper check time frames.

• More than half of surveyed Bank’s agreements state funds availability would no more than 2 days from receipt. ─ Of these, 7 provide for funds availability within 1 days from receipt. ─ Probably reflects customer expectation for the service.

• Application of Reg CC funds availability rules to RDC could be an issue that the FRB/CFPB address in the amendments to Reg CC ─ Any mandated availability period may cause banks to re-evaluate risk to RDC ─ Maybe lower transaction limits? Limit customers that obtain RDC service?

38


Fund Availability Bank A Same Business Day That Bank acknowledges Receipt of Image;

May extend by notice or for any reason in standard funds availability disclosure

Bank B 2nd Business Day after deposit Reserve right to impose additional hold period

Bank C Apply standard funds availability schedule. Reserve right to impose additional hold period

Bank D 3rd Business Day after deposit Bank E 1st Business Day after deposit Bank F 2nd Business Day after deposit generally

Has option of providing faster availability Funds provisional until final settlement from paying bank

Bank G Not specified in T&Cs Bank H 1st Business Day after deposit Bank I When final settlement from paying bank is received Bank J 1st Business Day after deposit

Reserve right to impose additional hold period Bank K 1st Business Day after deposit on Business Day

2nd Business Day after deposit on non-Business day Bank L Same Business Day, if received before cut-off time

Otherwise 1st Business Day after deposit Bank M 1st Business Day after deposit on Business Day

39

Funds Availability

39


Customer Warranties for RDC Mobile • Surveyed Banks’ agreements take a range of approaches to

warranties by depositor

• A few surveyed Banks’ agreements have very specific warranties that track the check image rules/Check 21 warranties

• Two of Banks have depositor make all of the same warranties that the Bank makes under law, clearinghouse rule, Fed Circular and/or regulation (Reg CC and J). ─ This catch-all warranty approach is frequently taken in some account

agreements for paper checks deposit ─ Shorter approach that allows large number of warranties to be brought in ─ Could be concern that customer is not on notice to full range of these

warranties

• Banks also may be relying on general warranties in the DDA agreement

40


Bank A

Bank B

Bank C

Bank D

Bank E

Bank F

Bank G

Bank H

Bank I

Bank J

Bank K

Bank L

Bank M

Image of check is eligible under agreement for deposit.

Image is accurate copy of front and back of original check

Image meets IMAGE QUALITY standards

Image meets TECHNICAL standards:

Depositor has not taken any action to alter or obscure image

Information with image includes all MICR line information and MICR line information is accurate

Depositor makes all warranties that BOFD makes under Check 21, Reg J and clearinghouse rule:

41

DEPOSITOR WARRANTIES: CHECK IMAGE PROCESSING FOR MOBILE RDC (Slide 1)


Bank A

Bank B

Bank C

Bank D

Bank E

Bank F

Bank G

Bank H

Bank I

Bank J

Bank K

Bank L

Bank M

Image Conforms with Reg CC requirements for image and substitute checks

No duplicate payment by drawer

No second deposit or presentment of original item or image

Depositor has possession of original check Original check was authorized by drawer

Depositor is authorized to enforce and obtain payment of the original check

Depositor makes same warranties depositor would have made if original paper check was deposited

No redeposit of returned item by depositor through RDC service

Only deposit images of paper items

Maintain appropriate firewalls and data security for to storage and transmission of check images in order to prevent duplication

Compliance with RDC customer agreement requirements

Compliance with all laws applicable to depositor

42

DEPOSITOR WARRANTIES: CHECK IMAGE PROCESSING FOR MOBILE RDC (Slide 2)


Customer Indemnification for RDC Mobile

• All survey Banks’ agreements include indemnification of Bank by customer

─ Most are general indemnification for any liability arising from the service

─ Seven of the agreements include indemnification for breach of warranties made by customer

─ Five of the agreements has indemnification for breach of agreement

─ Four of the agreements have customer provide same indemnification for losses Bank incurs under Check 21 and check image laws/rules

─ Only one agreement had breach for duplication

43


• Part IV

• AML Enforcement Orders

• Involving RDC

Part IV


• Increased regulatory review reflects that RDC is a new bank service • New service requires new risk reviews and new controls at

banks • New guidance has been issued by FFIEC and Federal

Regulators in the last few years • FFIEC, “Risk Management of Remote Deposit Capture”

(January 14, 2009) • FFIEC, Bank Secrecy Act/Anti-Money Laundering

Examination Manual (2010) • Regulators want to see how guidance is being implemented

Enforcement Orders Targeting Remote Deposit Capture Services

45


Order 1: Wachovia Bank, National Association, Charlotte, North Carolina

• Issued by OCC and FinCEN in March 2010

• Multiple AML program compliance issues; RDC activity was one aspect of it

• Focused on use of RDC by casas de cambios (“CDCs”)

• Bank failed to detect, review and report high volumes of monetary instruments flowing through CDCs and other foreign correspondent accounts via RDC deposit

• Bank failed to allocate adequate compliance resources for the implementation and ongoing operation of RDC systems and services.

46


• Issued by OCC and FinCEN in February 2011

• Multiple AML program compliance issues; RDC was one aspect of it

• Bank underestimated the risks posed by RDC activity by foreign correspondent and CDC customers

• Bank did not provide for appropriate risk management or internal controls to address the underlying risks posed by RDC activity.

• Failed to identify receipt of large-denomination, sequentially numbered monetary instruments and commercial checks from foreign correspondent and CDC customer accounts

• Bank employed an insufficient number of alert investigators for RDC service during a time when the volume and value of CDC customers’ RDC activity increased from millions to billions of dollars.

Order 2: Zion’s First National Bank, Salt Lake City, Utah

47


• Issued by OCC in April 2012

• Bank failed to file Suspicious Activity Reports (“SARs”) related to its RDC international cash letter instrument activity in a timely manner.

• Bank agreed that going forward: – All cash letter services, including international RDC, shall be

properly monitored for suspicious activity, and reported as suspicious as necessary

• These controls shall include: – Policies and procedures consistent with the Interagency

Guidance on “Risk Management of Remote Deposit Capture” (published by the FFIEC (OCC 2009-4)); (cont. on next slide)

Order 3: Citibank, NA, Sioux Falls, South Dakota

48


• Policies and procedures for identifying, investigating, and resolving transactions that are identified as “unusual”;

• Policies and procedures for reporting suspicious activity;

• Periodic evaluations of line of business and compliance personnel knowledge of and adherence to Bank policies and procedures for identifying transactions that pose greater than normal risk for compliance with the BSA; and

• Periodic evaluations of the sufficiency of staffing resources that support the line of business for the purpose of identifying and investigating unusual and/or suspicious activities.

Order 3 Continued

49


• Issued by FinCEN, OCC, and U.S. Department of Justice in September 2013

• Multiple AML program compliance and due diligence issues; RDC activity was one aspect of it

• Focused on use of wire transfers and of RDC by casas de cambios (“CDCs”) for the potential laundering of funds related to the narcotics trade

• Bank processed $1.5 billion of transactions for CDC’s without proper AML programs in place

• The Bank ceased operation in 2012, and the combined $8.2 million civil money penalty represents the majority of its remaining assets

Order 4: Saddle River Valley Bank, Montclair, New Jersey

50

Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) Copyright © 2013 Electronic Check Clearing House Organization (ECCHO) 51

Questions?

NOTICE These training materials may not be reproduced or published, in whole or in part, without the express permission of ECCHO.

Hosted by: Electronic Check Clearing House Organization 3710 Rawlins Street; Suite 1075

Dallas, Texas 75219

This session eligible for 1.8 NCP Continuing Education (CE) credits

For more information on the National Check Payments Certification NCPC) program, visit the NCPC page at www.eccho.org/ncpc

Oct

ober

18,

201

3

Thank You

http://www.eccho.org/ncpc

review of ffiec guidance, customer agreements & aml issues · ─ intent is to provide overview...

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