Issue 6
September 2024
Welcome to the MBA's News Digest!
Dear readers,
Are we there yet?
Find out how AI is revolutionising middle, and back office functions, in banking.
In India, digital payments catapult the country to 5th largest economy worldwide, while its Reserve Bank bolsters efforts against mule accounts, and digital fraud.
Best wishes,
The MBA team
400+ delegates from 21 countries regroup against financial crime at ESAAMLG event
31 August 2024
UK Banking Complaints Surge 70% on Credit Cards, Car Finance
28 August 2024
‘Complaints from bank customers in the UK over financial products soared 70% last quarter from a year earlier, mostly driven by disputes linked to credit cards and car loans, according to the country’s Financial Ombudsman Service…. In its Thursday statement, the ombudsman urged consumers to bring their complaints directly to the FOS as the service is free. “Using a professional representative doesn’t necessarily lead to a more favorable outcome,” it said, pointing out that only 25% of claims brought by law firms and other representatives were upheld, compared to 40% of those that came directly to the FOS.’
Hong Kong’s launch of wCBDC sandbox takes it closer to tokenised market
28 August 2024
‘The sandbox involves 25 participants in the first round of experiment. They include note-issuing banks HSBC, Standard Chartered and Bank of China (Hong Kong), Hang Seng Bank, fintech provider Ant Group and cryptocurrency exchange HashKey Group…. The sandbox will test a new financial market infrastructure that facilitates the four stages of a tokenised asset transaction: creation, trading, payment and settlement using tokenised bank deposits and final interbank settlement through the CBDC issued by HKMA, Yue said. The participants will further test and refine their use cases in four key themes: fixed income and investment funds, liquidity management, green and sustainable finance, and trade and supply chain financing.’
Novel risks, mitigants and uncertainties with permissionless distributed ledger technologies
28 August 2024
‘Banks that transact on permissionless blockchains or similar distributed ledger technologies (DLTs) face various risks. This paper considers the risks related to operations and security, governance, legal, compliance (including money laundering/financing of terrorism) and settlement finality. Certain risks stem from the blockchain’s reliance on unknown or third parties, which makes it difficult for banks to conduct due diligence and oversight. These risks require new risk management strategies and safeguards. Current practices for mitigating these risks remain in various stages of development and have not been tested under stress.’
Operational resilience in a macroprudential framework
27 August 2024
‘As previous incidents highlight, operational resilience has become more important to maintaining financial stability, particularly as the financial system has become more digitalised and interconnected. Recent operational incidents include the July 2024 worldwide IT outage caused by a flawed update distributed by CrowdStrike (a cyber-security technology firm), a July 2024 outage at Swift (a global messaging service) impacting wholesale payments in the UK and other countries, as well as cyber-attacks on ICBC Financial Services (a US broker-dealer) and ION (a third-party provider of derivatives clearing services) in November and February 2023 respectively. Looking ahead, the importance of operational resilience will continue to grow as developments in technology play a greater role in the provision of financial services and as business models continue to change.’
Are we there yet? The reality of AI use in banking and financial services
28 August 2024
‘Various middle and back office functions within financial institutions are already reaping the rewards from AI:
- Tech and Coding: AI enhances engineering capacity by automating code generation, creating synthetic data, and optimising algorithms.
- HR Training and Onboarding: AI-powered tools streamline the entire process.
- Risk and Compliance: AI models improve fraud detection and financial crime investigations, ensuring compliance with regulatory requirements.
- Operations and Process Documentation: AI solutions provide quick access to specific tasks, improving operational efficiency and reducing human errors.
Commercial and Marketing: AI optimises marketing campaigns by personalising content and enhancing customer engagement.’
ABA, associations: Electronic transfer fraud reimbursement bill would harm financial inclusion
28 August 2024
‘In a joint letter today, the American Bankers Association and three banking associations said they opposed legislation to require financial institutions to reimburse customers for electronic fund transfers that took place because the customer was scammed into sending the payment…. The Protecting Consumers from Payment Scams Act, which has been introduced in the House [H.R. 9303] and Senate [S. 4943], would amend the Electronic Fund Transfer Act to mandate that reimbursements be evenly split between a customer’s financial institution and the institution that received the fraudulent transfer. In their letter to the bill’s sponsors, the associations said the policy change would do nothing to stop criminals and instead encourage them to continue committing crimes. It also would put many financial institutions—particularly smaller, community institutions—in the untenable position of having to restrict access to deposit accounts.’
NPCI running pilot programme to identify mule accounts
30 August 2024
‘His comments come amid concerns raised by Reserve Bank of India (RBI) governor Shaktikanta Das about mule accounts. He has asked banks to strengthen customer onboarding and transaction monitoring systems to check unscrupulous activities. The RBI is working with banks and law enforcement agencies to check mule accounts and digital frauds. Mule accounts are owned by people who are duped by fraudsters into laundering illegal money via their bank accounts. When such incidents are reported, the money mule becomes the target of investigations due to their involvement.’
Ransomware in the financial sector
29 August 2024
‘Given this threat, FIs must be vigilant against sophisticated threat actors like Scattered Spider. Scattered Spider is a notable example of a sophisticated ransom threat actor group that has successfully and increasingly targeted organizations in the financial services industry. The group has deployed tactics such as calling IT Help Desks while impersonating an employee and requesting a password reset, thereby obtaining legitimate credentials and gaining access to an organization’s network. Scattered Spider also sends lookalike domains and phishing emails to direct employees to fake login pages. Once an employee enters their login information into these fake websites, the group steals the user’s credentials.’
FinCEN releases final rules for residential real estate reporting, and investment advisers
29 August 2024
‘The first rule requires the reporting of information to FinCEN about non-financed transfers of residential real estate to a legal entity or trust, but excludes banks from reporting obligations. Based on the way FinCEN initially assigned reporting responsibilities, the original proposal would have applied to banks that perform some of the real estate-related actions covered by the rule. The American Bankers Association recommended excluding banks as the institutions are already subject to robust BSA regulation, and FinCEN adopted the recommendation. The second rule applies Bank Secrecy Act requirements to certain investment advisers registered with the Securities and Exchange Commission, as well as those that report to the SEC as exempt reporting advisers.’
View: Digital payments are transforming India’s economy
26 August 2024
‘It is truly remarkable to see the rapid pace of change over the past decade making India the world’s fifth largest economy. India’s concerted push towards a “less-cash” economy is bringing half a billion Indians from underserved communities into the country’s economy; a key factor leading the country to becoming one of the world’s fastest growing economies. As Vice Chair of Visa, I strongly believe that advancing financial inclusion is the key to building sustained economic growth and India is creating a model for the future of payments globally.’
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