Financial Crime World

Ransomware Attack on Third-Party Vendor Highlights Risks of Payment Processor Relationships

A recent ransomware attack on a third-party vendor has left 60 credit unions struggling to recover from the fallout, with customers unable to access their online banking accounts and bill pay services. This incident serves as a stark reminder of the operational disruptions and reputational damage that can result from inadequate risk assessments in payment processor relationships.

The Risks of Payment Processor Relationships

  • ACH Network Risks:
    • Elevated risks of fraud
    • Settlement errors
    • Insufficient funds
    • Compliance issues
  • Financial institutions must implement robust internal controls and account monitoring to detect and resolve ACH transfer fraud, as well as ensure compliance with NACHA rules.

Identity Theft and Red Flag Risk Assessments

  • Identity theft is a critical risk factor that financial institutions must address.
  • Under FTC regulations, financial institutions must have a written Identity Theft Prevention Program in place and follow practices that identify suspicious activity.
  • Failure to do so can result in significant reputational damage and regulatory consequences.

Remote Deposit Capture (RDC) Technology

  • RDC technology presents legal and compliance risks, operational risks, and vendor risks.
  • Financial institutions must assess these risks carefully to avoid processing inaccuracies and potential fraud.

Digital Banking Services and Products

  • Online banking, mobile banking, and peer-to-peer lending have grown in popularity but also introduce cybersecurity threats, potential compliance issues, and operational risks.
  • FIs must evaluate these risks carefully when partnering with fintech firms and other technology service providers.

The Need for Integrated Risk Assessments

  • Financial institutions must prioritize integrated risk assessments that consider all types of risk, including payment processor relationships, identity theft, RDC, digital banking, and more.
  • By doing so, financial institutions can transform risk from a liability into an opportunity to enhance their safety and soundness while taking full advantage of opportunities.

Don’t Wait Until It’s Too Late: Conduct Regular Risk Assessments

In today’s digital age, payment processor relationships, identity theft, RDC, digital banking, and other types of risk pose significant threats to financial institutions. Don’t wait until a ransomware attack or other crisis strikes – conduct regular risk assessments to mitigate operational disruptions and reputational damage.