R. Kinney Williams & Associates
R. Kinney Williams
& Associates

Internet Banking News

December 9, 2001

FYI - A preliminary test of mail delivered to a secure, closed mail-handling facility outside the main Federal Reserve Board building tested positive for anthrax exposure late Thursday afternoon.
www.federalreserve.gov/boarddocs/press/General/2001/20011206/default.htm


FYI
- Russian Man Arrested in ATM Fraud Case A Russian organized crime ring stole account and personal identification numbers (PINs) from people using point of sale ATMs in Manhattan, New Your City. The group allegedly stole $1.5 million from the victims, who are largely Chase and Citibank customers. 
http://www.msnbc.com/news/664990.asp?0dm=T217T#BODY 

INTERNET COMPLIANCE
Electronic Fund Transfer Act, Regulation E (Part 2 of 2)

Additionally, the regulations clarifies that a written authorization for preauthorized transfers from a consumer's account includes an electronic authorization that is not signed, but similarly authenticated by the consumer, such as through the use of a security co.  According to the OSC, an example of a consumer's authorization that is not in the form of a signed writing but is, instead, "similarly authenticated," is a consumer's authorization via a home banking system.  To satisfy the regulatory requirements, the institution must have some means to identify the consumer (such as a security code) and make a paper copy of the authorization available (automatically or upon request).  The text of the electronic authorization must be displayed on a computer screen or other visual display that enables the consumer to read the communication from the institution. Only the consumer may authorize the transfer and not, for example, a third-party merchant on behalf of the consumer.


Pursuant to the regulations, timing in reporting an unauthorized transaction, loss, or theft of an access device determines a consumer's liability.  A financial institution may receive correspondence through an electronic medium concerning an unauthorized transaction, loss, or theft of an access device.  Therefore, the institution should ensure that controls are in place to review these notifications and also to ensure that an investigation is initiated as required.

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.

Principle 3: Banks should ensure that appropriate measures are in place to promote adequate segregation of duties within e-banking systems, databases and applications.

Segregation of duties is a basic internal control measure designed to reduce the risk of fraud in operational processes and systems and ensure that transactions and company assets are properly authorized, recorded and safeguarded. Segregation of duties is critical to ensuring the accuracy and integrity of data and is used to prevent the perpetration of fraud by an individual. If duties are adequately separated, fraud can only be committed through collusion.

E-banking services may necessitate modifying the ways in which segregation of duties are established and maintained because transactions take place over electronic systems where identities can be more readily masked or faked. In addition, operational and transaction-based functions have in many cases become more compressed and integrated in e-banking applications. Therefore, the controls traditionally required to maintain segregation of duties need to be reviewed and adapted to ensure an appropriate level of control is maintained. Because access to poorly secured databases can be more easily gained through internal or external networks, strict authorization and identification procedures, safe and sound architecture of the straight-through processes, and adequate audit trails should be emphasized.

Common practices used to establish and maintain segregation of duties within an e-banking environment include the following:

1)  Transaction processes and systems should be designed to ensure that no single employee/outsourced service provider could enter, authorize and complete a transaction.

2)  Segregation should be maintained between those initiating static data (including web page content) and those responsible for verifying its integrity.

3)  E-banking systems should be tested to ensure that segregation of duties cannot be bypassed.

4)  Segregation should be maintained between those developing and those administrating e-banking systems.


PRIVACY - We continue covering various issues in the "Privacy of Consumer Financial Information" published by the financial regulatory agencies in May 2001.

Sharing nonpublic personal information with nonaffiliated third parties under Sections 14 and/or 15 and outside of exceptions (with or without also sharing under Section 13). 
(Part 1 of 3)

Note:
Financial institutions whose practices fall within this category engage in the most expansive degree of information sharing permissible. Consequently, these institutions are held to the most comprehensive compliance standards imposed by the Privacy regulation.

A. Disclosure of Nonpublic Personal Information 

1)  Select a sample of third party relationships with nonaffiliated third parties and obtain a sample of data shared between the institution and the third party both inside and outside of the exceptions. The sample should include a cross-section of relationships but should emphasize those that are higher risk in nature as determined by the initial procedures. Perform the following comparisons to evaluate the financial institution's compliance with disclosure limitations.

a.  Compare the categories of data shared and with whom the data were shared to those stated in the privacy notice and verify that what the institution tells consumers (customers and those who are not customers) in its notices about its policies and practices in this regard and what the institution actually does are consistent (10, 6).

b.  Compare the data shared to a s`ample of opt out directions and verify that only nonpublic personal information covered under the exceptions or from consumers (customers and those who are not customers) who chose not to opt out is shared (10).

2)  If the financial institution also shares information under Section 13, obtain and review contracts with nonaffiliated third parties that perform services for the financial institution not covered by the exceptions in section 14 or 15. Determine whether the contracts prohibit the third party from disclosing or using the information other than to carry out the purposes for which the information was disclosed. Note that the "grandfather" provisions of Section 18 apply to certain of these contracts (13(a)) .

 

PLEASE NOTE:  Some of the above links may have expired, especially those from news organizations.  We may have a copy of the article, so please e-mail us at examiner@yennik.com if we can be of assistance.  

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