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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

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July 20, 2015

Unsafe at Any Speed?

If you're a Corvair enthusiast, you likely get the title's reference to Ralph Nader's book that polemically accused manufacturers of resistance to the advancement of automotive safety. Shift your thoughts from automobiles, axles, and bumpers to payments, cyberattacks and data breaches. Then consider this question—if we successfully speed up payments, is payment safety more likely to advance or retreat?

I hear the question often. Since I first blogged about this topic in January, I've attended several conferences set in the context of building a better, faster, more efficient payments system. If the conversation hasn't gone straight to "safety," the topic has surely been broached before closing. The answers that presenters offer, in terms of how we make payments more secure, remain unchanged from earlier this year. The updated summary follows.

  • Innovate. Make full use of such things as biometrics and tokenization. Do not fear but rather make use of the best things coming from the cryptocurrency world.
  • Collaborate and coordinate. Share everything, taking full advantage of groups of all types to facilitate deployment and spread of best practices, among other things.
  • Prevent and plan. In a continuous and ever-improving activity, make use of such things as enhanced threat detection and continue to layer security measures. Also, educate fully, across the spectrum of both providers and users.
  • Track and report. We must do more of this in a frank, transparent way and it must be timelier.

Emphasizing and pursuing all these goals is still right in my view, yet something seems missing. I believe what's missing is a more expansive, easily accessible law enforcement regime—something that more closely parallels what's available for conventional crime fighting.

There has been good news, of late, in that various law enforcement agencies have both apprehended and successfully prosecuted cybercriminals of all sorts. What's important about this is, as law enforcement has more success, there is hope that miscreants will have an increasing expectation of getting caught. Let's assume a drop in crime rates is highly correlated to the likelihood or certainty of being caught. Self-test the theory by thinking of it this way. How often do you exceed the speed limit (answer silently to yourself). Now consider—how often do you speed when a patrol car is in the lane right next to you? It's imperative that law enforcement continue to evolve and improve such that the criminals who contemplate cybercrime increasingly anticipate they'll be caught.

The cliché that faster payments will mean faster fraud if we don't have faster security is somewhat beside the point. The fact is cybercrime has been and remains a material and looming threat. The world is all but fully a digital one and that means our police have to be able to put more—and more effective—digital patrol cars on the digital highway. Until then, to varying extents, payments are likely to be unsafe—at any speed.

Photo of Julius Weyman By Julius Weyman, vice president, Retail Payments Risk Forum at the Atlanta Fed

May 11, 2015

The Hill Tackles Cybersecurity

In a post last month, Take on Payments highlighted recent cybersecurity-related executive orders. Cybersecurity has been a hot item inside the Beltway in 2015, and the activity hasn't been limited to the executive office. Beginning on April 22, the House passed two separate cybersecurity bills. And now all eyes are on the Senate, as it looks like a vote on its own cybersecurity bill is set to take place later in May. Today's Take On Payments post will highlight the two House bills recently passed by the House and the Senate's bill under consideration.

Protecting Cyber Networks Act (H.R. 1560)
This bill encourages the timely sharing of cyber threat information among private entities, nonfederal government agencies, and local governments. It provides businesses liability protection for sharing cyber threat indicators when taking reasonable efforts to remove personally identifiable information (PII). The bill also allows the federal government (excluding the National Security Agency and Department of Defense) to share cyber threat information with private entities, nonfederal government agencies, and local governments. To further promote and protect individual privacy, it requires that the Department of Justice (DOJ) periodically review the information shared to ensure that PII is not being received, used, or disseminated by a federal entity. Finally, this bill directs the Cyber Threat Intelligence Integration Center (CTIIC), under the direction of the Office of the Director of National Intelligence, to serve as the primary organization to analyze and integrate all intelligence shared.

National Cybersecurity Protection Advancement Act of 2015 (H.R. 1731)
The purpose of this bill is to also encourage information sharing of cyber related risks among the private sector and government. Unlike its companion bill, which directs the CTIIC as the overseer of the information-sharing program, this bill authorizes the Department of Homeland Security (DHS) to do so. In order for the DHS to serve in this capacity, the bill expands the composition and scope of the DHS national cybersecurity and communications integration center to include additional parties, namely private entities and information-sharing and analysis centers, among its non-federal representatives. As with H.R. 1560, the bill has provisions to protect individual privacy and requires that the DHS performs an annual privacy policies and procedures review. As with its companion House bill, liability protection is afforded to parties sharing information.

Cybersecurity Information Sharing Act (CISA) of 2015 (S. 754)
The Senate's version of cybersecurity legislation is a companion bill to the two recently passed House bills and combines tenets of both of them. It's viewed as an information-sharing bill, with the DHS serving as the federal entity responsible for overseeing the sharing of data between the government and private sector. The DOJ is responsible for ensuring that privacy and civil liberties are upheld within the information-sharing program. As with the House bills, liability protection is provided to all entities sharing information.

The goal of information sharing featured in these bills is the hope both government and private sector would benefit. As evidenced by the participation of a significant number of financial institutions (FIs) with the Financial Services Information Sharing and Analysis Center, many FIs are seeing value to sharing cybersecurity information within their own sectors. Additionally, the Retail Industry Leaders Association established the Retail Cyber Intelligence Sharing Center earlier this year to share cyber threat information between retailers and law enforcement. Whether or not these bills accomplish the goals of creating a private environment to safely share cybersecurity information and risks, I think the payments industry and other private industries would benefit from sharing information among themselves and with government and law enforcement agencies.

Photo of David Lott By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

May 19, 2014

Choking on the Cost of Risk Management

In March 2013, the Department of Justice (DOJ), joined by the Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB), quietly launched the program “Operation Choke Point.” The program’s objective is to cut off fraudsters’ access to consumer bank accounts by restricting—or choking off—their access to the banking system. Normally the fraudsters would be the only ones complaining about officials trying to shut down their business, but this program is also creating new risk management challenges for the banking industry.

While critics of the program readily admit that criminal activities should be fully investigated and prosecuted, they contend that the program has imposed a wider, “chilling,” effect on financial institutions and their third-party payment processors. A number of financial institutions have said that the operational, compliance, and risk costs associated with the increased scrutiny outweigh the benefits of such high-risk but legal business account relationships and can result in their termination.

The agencies defend their actions, stating that the “know-your-customer” and “know-your customer’s customers” requirements have been in place for some time. They say they are targeting only processors and financial institutions that are blatantly exchanging these requirements for due diligence and compliance with the Bank Secrecy Act (BSA) for a sizable fee revenue opportunity.

By September 2013, the DOJ had issued 50 subpoenas to financial institutions and their processors citing the BSA’s requirements for a financial institution to monitor the activities of its customers and its customer’s customers for suspicious activity. In its first enforcement action of the program, in early 2014, the DOJ entered into an agreement with a holding company of a North Carolina community bank for $1.2 million in civil penalties and with certain restrictions with regards to its future processor relationships. The DOJ alleged that the holding company’s management knowingly ignored numerous warning signs that some of its processing customers had clients engaged in illegal business practices, including internet-based payday lending, gambling, and even Ponzi schemes, all to generate large amounts of account service charges and fees. A U.S. District Court judge approved the agreement on April 25 this year. However, the bank didn’t admit to anything in the DOJ complaint nor to any liability.

To help financial institutions better deal with the risk management requirements that Operation Choke Point highlights, a number of associations have developed materials or issued guidelines. An earlier Portals and Rails post discussed the reminders from NACHA on the know-your-customer’s-customer rules and the proposed rules about return item limits that could potentially signal fraudulent or deceptive practices. The Electronic Transactions Association (ETA) has recently published a best-practices guide for processor relationship onboarding and continued oversight. This document, “Guidelines on Merchant and ISO Underwriting and Risk Monitoring,” is available to ETA members only, but the organization has given us permission to make the guide’s executive summary available.

Portals and Rails is interested in your thoughts on Operation Choke Point and the response by some banks, and we pose this question: Are banks properly pricing their services to the business that requires such intense risk management measures?

Photo of Deborah ShawBy David Lott, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed


January 27, 2014

The Importance of Partnerships between the Private Sector and Law Enforcement

Helen Keller once said, "Alone we can do so little; together we can do so much." As the "forum" part of our name implies, we tend to agree with Helen Keller's comment on collaboration. The mission of the Retail Payments Risk Forum (RPRF) is to identify, detect, educate, and encourage mitigation of risk in retail payment systems. We firmly believe that one of the ways to achieve our mission is to collaborate with industry participants, regulators, and law enforcement. And while we convene our own forums to encourage collaboration, ample opportunities for collaboration between law enforcement and the private sector exist beyond the boundaries of the RPRF.

Below are descriptions of organizations that are built on such collaborations.

  • Financial Services Information Sharing and Analysis Center (FS-ISAC): An organization dedicated to gathering and disseminating reliable and timely information from financial services providers, security firms, local, state, and federal law enforcement agencies, and other trusted resources related to physical and cyber threats against the financial services community.
  • National Cyber-Forensics &l Training Alliance (NCFTA): A nonprofit corporation with formal partnerships/agreements with more than 40 U.S. private-sector organizations and more than 15 U.S. and international law enforcement or regulatory agencies. The NCFTA enlists subject matter experts from stakeholder organizations to share real-time intelligence regarding cyber threats and supports the development of joint proactive strategies to better identity, mitigate, and ultimately neutralize threats.
  • Electronic Crimes Task Forces: Led by the United States Secret Service, these groups bring together federal, state, and local law enforcement with prosecutors, private industry, and academia for the purpose of preventing, detecting, investigating, and mitigating attacks on the nation’s financial infrastructures. Groups are structured through local field offices and organized in most major metropolitan areas.
  • InfraGard: Led by the Federal Bureau of Investigation, this association with representatives from the private sector, academia, and state, local, and federal law enforcement agencies is dedicated to sharing information and intelligence to prevent hostile acts against the United States. Like the Electronic Crimes Task Force, InfraGard is comprised of groups organized by FBI field offices in major metropolitan areas.
  • Anti-Phishing Working Group (APWG): An organization that seeks to unify the global response to cybercrime across industry, government, and law enforcement through data sharing, education, and standards development.

Each of these groups is different, but the common thread is information sharing between the private sector and law enforcement. This collaboration increases knowledge and awareness of threats and is often required to effectively capture and prosecute the masterminds behind attacks on financial institutions and their customers. I encourage our readers to learn more about and take advantage of these opportunities and others for collaboration between law enforcement and the private sector.

Douglas A. KingBy Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed