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September 2, 2001
FYI - The Federal Deposit Insurance
Corporation has launched a Web page that allows users to search a
database of unclaimed funds from failed financial
institutions. You wish to link this off your web site.
www.fdic.gov/news/news/press/2001/pr5601.html
FYI - For all their
convenience, most online banks fail to accommodate consumers wanting
to keep their personal financial information private, according to a
study released Wednesday.
http://cnet.com/news/0-1005-200-7004484.html?tag=mn_hd
INTERNET
COMPLIANCE - Expedited Funds Availability Act
(Regulation CC)
Generally, the rules pertaining to the duty of an institution to
make deposited funds available for withdrawal apply in the
electronic financial services environment. This includes rules on
fund availability schedules, disclosure of policy, and payment of
interest. Recently, the FRB published a commentary that clarifies
requirements for providing certain written notices or disclosures to
customers via electronic means. Specifically, the commentary to the
regulations states that a financial institution satisfies the
written exception hold notice requirement, and the commentary to the
regulations states that a financial institution satisfies the
general disclosure requirement by sending an electronic version that
displays the text and is in a form that the customer may keep.
However, the customer must agree to such means of delivery of
notices and disclosures. Information is considered to be in a form
that the customer may keep if, for example, it can be downloaded or
printed by the customer. To reduce compliance risk, financial
institutions should test their programs' ability to provide
disclosures in a form that can be downloaded or printed.
INTERNET SECURITY - We continue covering some of the
issues discussed in the "Risk Management Principles for
Electronic Banking" published by the Basel Committee on Bank
Supervision in May 2001.
Introduction
Banking organizations have been delivering electronic services to
consumers and businesses remotely for years. Electronic funds
transfer, including small payments and corporate cash management
systems, as well as publicly accessible automated machines for
currency withdrawal and retail account management, are global
fixtures. However, the increased world-wide acceptance of the
Internet as a delivery channel for banking products and services
provides new business opportunities for banks as well as service
benefits for their customers.
Continuing technological innovation and competition among existing
banking organizations and new market entrants has allowed for a much
wider array of electronic banking products and services for retail
and wholesale banking customers. These include traditional
activities such as accessing financial information, obtaining loans
and opening deposit accounts, as well as relatively new products and
services such as electronic bill payment services, personalized
financial “portals,” account aggregation and
business-to-business market places and exchanges.
Notwithstanding the significant benefits of technological
innovation, the rapid development of e-banking capabilities carries
risks as well as benefits and it is important that these risks are recognized
and managed by banking institutions in a prudent manner. These
developments led the Basel Committee on Banking Supervision to
conduct a preliminary study of the risk management implications of
e-banking and e-money in 1998. This early study demonstrated a clear
need for more work in the area of e-banking risk management and that
mission was entrusted to a working group comprised of bank
supervisors and central banks, the Electronic Banking Group (EBG),
which was formed in November 1999.
The Basel Committee released the EBG’s Report on risk management
and supervisory issues arising from e-banking developments in
October 2000. This Report inventoried and assessed the major risks
associated with e-banking, namely strategic risk, reputational risk,
operational risk (including security and legal risks), and credit,
market, and liquidity risks. The EBG concluded that e-banking
activities did not raise risks that were not already identified by
the previous work of the Basel Committee. However, it noted that
e-banking increase and modifies some of these traditional risks,
thereby influencing the overall risk profile of banking. In
particular, strategic risk, operational risk, and reputational risk
are certainly heightened by the rapid introduction and underlying
technological complexity of e-banking activities.
PRIVACY - We continue covering various issues in the
"Privacy of Consumer Financial Information" published by
the financial regulatory agencies in May 2001.
Consumer and Customer:
The distinction between consumers and customers is significant
because financial institutions have additional disclosure duties
with respect to customers. All customers covered under the
regulation are consumers, but not all consumers are customers.
A "consumer" is an individual, or that individual's legal
representative, who obtains or has obtained a financial product or
service from a financial institution that is to be used primarily
for personal, family, or household purposes.
A "financial service" includes, among other things, a
financial institution's evaluation or brokerage of information that
the institution collects in connection with a request or an
application from a consumer for a financial product or service. For
example, a financial service includes a lender's evaluation of an
application for a consumer loan or for opening a deposit account
even if the application is ultimately rejected or withdrawn.
Consumers who are not customers are entitled to an initial privacy
and opt out notice only if their financial institution wants to
share their nonpublic personal information with nonaffiliated third
parties outside of the exceptions.
A "customer" is a consumer who has a "customer
relationship" with a financial institution. A "customer
relationship" is a continuing relationship between a consumer
and a financial institution under which the institution provides one
or more financial products or services to the consumer that are to
be used primarily for personal, family, or household purposes.
IN CLOSING - We want to extend
all the best to Don Powell in his new venture as Chairman of the
FDIC. We know that he will bring leadership that will benefit
both the bankers and the examination profession.
{Firstname}, we sincerely appreciate you reading the Internet
Banking News. I hope you will keep remember us you decide
on your Internet auditing services. Besides web site auditing,
we offer vulnerability-intrusion testing, on-site IT audits, and
Internet privacy assessment programs. Please visit http://www.yennik.com/
for more information or send me an e-mail at examiner@yennik.com.
We hope you had a good Labor Day weekend.
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