Financial Institutions and Banking

Bank Wire

Regulators focusing on liquidity risk management

Liquidity risk is in the spotlight, given last year’s notable bank failures and federal banking regulators’ explanations of the underlying causes. As regulators focus on liquidity risk management, they’re reminding banks that their 2010 “Interagency Policy Statement on Funding and Liquidity Risk Management (SR 10-06)” continues to be the primary guidance on the subject.

The policy statement discusses eight critical elements of sound liquidity risk management:

  1. Effective corporate governance,
  2. Appropriate strategies, policies, procedures, and limits used to manage and mitigate liquidity risk,
  3. Comprehensive liquidity risk measurement and monitoring systems that are commensurate with the bank’s complexity and business activities,
  4. Active management of intraday liquidity and collateral,
  5. An appropriately diverse mix of existing and potential future funding sources,
  6. Adequate levels of highly liquid marketable securities free of legal, regulatory or operational impediments that can be used to meet liquidity needs in stressful situations,
  7. Comprehensive contingency funding plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements, and
  8. Internal controls and internal audit processes sufficient to determine the adequacy of the bank’s liquidity risk management process.

Banks need to follow these guidelines to ensure appropriate liquidity risk management.

Junk fees in the crosshairs

Federal agencies, including the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB), are cracking down on so-called “junk fees” charged by banks and other businesses. Recently, the FTC issued a proposed “Rule on Unfair or Deceptive Fees,” which would prohibit businesses from misrepresenting the total cost of goods or services by omitting mandatory fees from advertised prices and misrepresenting, or failing to disclose, the nature and purpose of fees. Although the FTC has no authority over banks, the CFPB has indicated that it will enforce the rule against violators in the financial industry.

Watch out for pig butchering scam

In a recent alert, the Financial Crimes Enforcement Network (FinCEN) warned banks about a dangerous virtual currency investment scam known as “pig butchering.” Given the devastating impact of this scam, FinCEN has asked banks to report suspicious activities indicative of this scheme. According to FinCEN, the scam resembles “the practice of fattening a hog before slaughter.” Criminals use fake identities, elaborate storylines and other techniques to convince victims they’re in a trusted partnership before defrauding them of their assets.

The alert explains the scheme and provides a detailed list of behavioral, financial, and technical red flags to help banks identify and report suspicious activity. It also reminds banks of their reporting obligations under the Bank Secrecy Act and reviews the filing instructions for suspicious activity reports.

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