Unemployment insurance fraud related to the coronavirus crisis has earned the attention of the Treasury’s financial law enforcement arm, as the agency this week issued an advisory urging financial institutions to be on the alert for the practice.
“Many illicit actors are engaged in fraudulent schemes that exploit vulnerabilities created by the pandemic,” the advisory issued by Treasury’s Financial Crimes Enforcement Network (FinCEN) stated.
The agency said the advisory is based on its analysis of information related to the coronavirus pandemic gleaned from Bank Secrecy Act (BSA) data, open source reporting, and law enforcement partners. It addresses representative types of illicit activity related to unemployment insurance fraud, including: fictitious employer-employee fraud, employer-employee collusion fraud, misrepresentation of income fraud, insider fraud, and identity-related fraud.
Also listed in the advisory are 10 “red-flag” indicators meant to alert financial institutions to fraud schemes targeting unemployment insurance programs, and to help the institutions detect, prevent, and report “suspicious transactions related to such fraud.”
Financial institutions are also directed to specially tag any suspicious activity reports (SARs) filed in conjunction with suspected unemployment insurance fraud to include the term “COVID19 UNEMPLOYMENT INSURANCE FRAUD FIN-2020-A007” in SAR field 2 on the form.
LINK:
Advisory on Unemployment Insurance Fraud During the Coronavirus Disease 2019 (COVID-19) Pandemic
A request for information (RFI) from CFPB about whether rules applying credit card consumer protections should still stand, be revised or rescinded is summarized by NASCUS in a new posting on the association’s website.
The summary is available for members only.
In late August, the bureau released the RFI (with comments due Oct. 27) as a tool for facilitating its review of the 2009 law known as the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The RFI, more specifically, seeks information on the economic impact on small entities of the rules implementing the law, as well as on how the consumer credit card market is functioning under the CARD Act rules.
In reviewing the rules’ effect on small entities, the bureau said it was looking for comments on (among other things) the current scale of the economic effects of the rules as a whole (and their major components) on small entities including on reporting, recordkeeping, and other compliance requirements, and how those effects can be reduced (consistent with the statute).
As for the credit card marketplace, the bureau said it sought comments on (again, among other things): terms of credit card agreements and the practices of credit card issuers; effectiveness of disclosure of terms, fees, and other expenses of credit card plans; adequacy of protections against unfair or deceptive acts or practices relating to credit card plans; and the cost and availability of consumer credit cards; and product innovation.
LINK:
Summary: RFI on impact of CARD Act regulations on small entities and the consumer credit card market (members only)
In other action Thursday, the NCUA Board issued a proposed rule the agency said would streamline its regulations on derivatives, and heard a report on cybersecurity.
Regarding the derivatives proposal, the agency said it is intended to modernize the current rule and make it more “principles-based.” “This proposal retains key safety and soundness components, while providing more flexibility for federal credit unions to manage their interest rate risk (IRR) through the use of Derivatives,” the agency said in proposing the rule.
Further, NCUA said, the changes would “streamline” the rule and give credit unions more authority to purchase and use derivatives for managing interest-rate risk. The proposal also, NCUA said, reorganizes rule content related to loan pipeline management into one section, which it said would aid in readability and clarity.
NASCUS’ Ito asserted that state credit union derivative authority “properly rests” with state supervisors, and that they have the experience to apply that power. “State credit union regulators have extensive experience with derivatives and interest rate swaps both in state-chartered credit unions and community banks,” Ito said. “The state system looks forward to assisting NCUA in raising awareness of derivative oversight in the broader credit union system by bringing state regulator credit union experience and lessons to the learning table.”
She also described NCUA’s move to streamline its derivative regulation as “pro-active in anticipation of increased interest rate risk given current low-rate environment and likely long-term rate increases.”
Meanwhile, during the discussion on cybersecurity (which featured a staff presentation outlining risks related to the coronavirus crisis), NCUA Board Chairman Rodney Hood was joined by Board Members J. Mark McWatters and Todd Harper in voicing support for third-party vendor examination authority for the agency. Unlike federal banking regulators, NCUA lacks direct statutory exam authority over those vendors.
NASCUS has supported the agency obtaining examination authority over technology service providers (TSPs) that provide services to federally insured credit unions, provided that any such authority requires NCUA to rely on state examinations of such service providers where such authority exists at the state level.
The association has also supported efforts to strengthen state regulatory examination and supervision of third parties providing services to state chartered institutions.
LINKS:
NCUA Proposed Rule, Part 703, Derivatives
Board Briefing, Cybersecurity Considerations for Boards of Directors During COVID-19.
A final rule on corporate credit unions that is generally aimed at clarifying a number of provisions in NCUA’s rules was approved unanimously by the agency’s board Thursday.
In other action, the board issued a proposal on credit union investments in derivatives, and heard a staff report on cybersecurity issues (see following item). A proposed request for information (RFI) on supervisory guidance review and improvements in communications was removed from the board’s agenda; Chairman Rodney Hood announced the board members agreed to remove the proposal.
The final corporate rule, NCUA said, addresses five key areas in the existing rules. The new regulation:
- permits a corporate credit union to make a minimal investment in a credit union service organization (CUSO) without the service organization being subjected to heightened agency oversight;
- expands the categories of senior staff positions at member credit unions eligible to serve on a corporate credit union’s board;
- removes the “experience and independence” requirement for a corporate CU’s enterprise risk management (ERM) expert;
- clarifies the definition of a collateralized debt obligation;
- simplifies the requirement for net interest income modeling.
The final rule incorporates most of the recommendations that the state system, through NASCUS’ comment letter, offered to the agency. “Broadening eligibility of natural person credit union senior staff to serve as board members should expand access to highly relevant expertise,” NASCUS President and CEO Lucy Ito said, underscoring the association’s support for the provision, and the fact that six of 11 corporate credit unions are state-chartered. “And, enabling corporate CUs to make minimal investments in a CUSO without triggering a ‘corporate CUSO’ classification should enable the credit union system to stay abreast of broader fintech developments,” she said.
NASCUS’ recommendation not to include a provision from the proposal is also reflected in the final rule. That is: removing approved corporate activities from the agency’s website and, instead, incorporating the activities into the regulation as an appendix. NASCUS advised the agency that the administrative process of making that change would add delay and hamper the ability of corporate credit unions to obtain timely determinations of proposed new activities. NCUA, in its final rule, noted that no commenters supported the change – and thus decided to drop it.
The final rule also makes some changes with regard to proposed subordinated debt offerings by credit unions. NCUA had proposed including a definition of the debt instrument (a method for bolstering capital positions for some credit unions) in the corporate rule, as a way of setting the stage for a subsequent final rule on subordinated debt instruments offered by credit unions. (A proposal was issued in January on subordinated debt; the comment period ended in July.) The corporate rule had also proposed requiring corporate credit unions to deduct from their tier 1 capital any subordinated debt instruments they purchased from credit unions, to protect the capital position of the corporates.
However, NCUA decided to remove both of those provisions from the final rule, noting that both sections would be addressed in a final rule on subordinated debt. The agency added that it does not envision any changes to the proposed definition.
NASCUS’ Ito said the state system looks forward to discussion with the agency about corporate CU participation in subordinated debt as the agency moves toward a final rule on the subject.
Also during the Thursday meeting, NASCUS’ comment letter on the proposed corporate rule earned a shout-out from Board Member Todd Harper, who noted the state system’s support for allowing minimal investment by corporates in CUSOs.
LINK:
NCUA Final Rule, Part 704, Corporate Credit Unions
The three federal banking agencies joined with NCUA late last week to issue an exemption from the requirements of the customer identification program (CIP) rules for loans extended by banks and credit unions and their subsidiaries to all members and customers for purchases of property and casualty insurance policies.
The exemption was extended with the concurrence of the Treasury’s top financial law enforcement agency, the Financial Crimes Enforcement Network (FinCEN), according to the four agencies.
According to the order made public late last (but adopted Oct. 5), the rules require a bank or credit union to implement a CIP that includes risk-based verification procedures. Those measures, the order states, enable the financial institution to form “a reasonable belief that it knows the true identity of its customers.” Further, the procedures must specify the identifying information that a financial institution will obtain from each customer prior to opening an account.
However, the agencies said they determined that an exemption from those requirements would be consistent with the purposes of the Bank Secrecy Act (BSA), based on FinCEN’s determination that premium finance loans present a low risk of money laundering or terrorist financing.
Additionally, the agencies asserted, the exemption is consistent with safe and sound banking. “The resulting banking practices will not be contrary to generally accepted standards of prudent banking operation and will not give rise to abnormal risk or loss or damage to an institution, its shareholders, or the agencies administering the insurance funds,” the agencies wrote.
The order does state, however, that credit unions and banks participating in premium finance lending must continue to comply with all other regulatory requirements, including the regulations implementing BSA which require the filing of suspicious activity reports (SARs).
A one-hour webinar focusing on how to prevent the spreading rash of embezzlements among financial institutions (including credit unions) is on the NASCUS education agenda for the middle of November
The Nov. 18 session, featuring internal controls expert Jim Vilker, explores key factors in embezzlements, types of embezzlements and review of basic internal controls. According to NASCUS Vice President of Education Dr. Isaida Woo, Vilker developed the program after compiling a list of sound internal controls that credit unions should adopt and examiners and auditors should consider.
“These internal control recommendations were developed through Jim’s involvement in forensic analysis and review of indictments related to a number of embezzlements,” Woo said. “The best practices to hinder fraud that Jim has collected will equip credit unions with the implements they need to counter this fraud.”
The session is planned to run from 2-3 p.m. ET; cost is $99 for NASCUS members and $199 for all others.
Other NASCUS education events going on now or coming up include:
CUNA Cybersecurity eSchool with NASCUS; Now through Oct. 29
CUNA BSA/AML Certification eSchool with NASCUS; Monday through Dec. 7
Risk Assessment Webinar; Nov. 18 (2-3pm ET)
Tennessee Director College; Dec. 1 (9 a.m.-noon CT)
Michigan Industry Day; Dec. 3 (9 a.m.-noon ET)
LINK:
NASCUS Nov. 18 risk assessment webinar
For those credit unions that must comply with their states’ community reinvestment act (CRA) requirements, the FFIEC said this week that the second release of data entry software (DES) for financial institutions reporting their 2020 reporting compliance is ready. The Exam Council said the second release of the 2020 Community Reinvestment Act (CRA) reporting software includes the 2020 census update and an enhancement of the “Submission via Web” data export option. It is available at no charge … NCUA, marking October’s status as Cybersecurity Month, said this week it is focusing on four key points in cybersecurity: Advancing consistency, transparency, and accountability within the cybersecurity examination program; encouraging due diligence for supply chain and third-party service provider management at credit unions; assisting institutions with resources to improve operational hygiene and resilience; ensuring the agency’s systems and collected, controlled unclassified information is secure
LINK:
The 2020 CRA Data Entry Software Release 2 is now available
In the video (click on the image to see), NASCUS’ Lucy Ito discusses “the full potential of the credit union mission” with Susan Mitchell
“The full potential of the credit union mission” was the subject of a video interview this week between NASCUS’ Lucy Itoand Susan Mitchell of Mitchell, Stankovic and Associates on behalf of the Underground, a program focusing on credit union dialogue. Ito was featured in an “Underground Chat” that was web-streamed this week. Among other things, Ito discussed the impact of the coronavirus crisis on credit unions, social unrest, consumer protection in an age of heightened use of digital communications – and more!
LINK:
Full Potential of Our Mission with Lucy Ito, President & CEO, NASCUS