OCC’s Hsu: Agility and Teamwork Critical as Banks Confront New Risks

Banks are confronting new, digital risks, and guarding against them demands a more agile, teamwork-focused approach.

Michael Hsu, acting Comptroller of the Currency, said in a Tuesday (Sept. 3) speech before the Joint European Banking Authority and European Central Bank International Conference that within financial services, “digitalization … has brought great benefits, but has also increased the risk surface for cyberattacks. At the same time, hackers, money launderers and fraudsters have become much more sophisticated. Controls and systems that were effective a couple of years ago may not be effective today.”

This week, Intellicheck CEO Bryan Lewis told PYMNTS: “We are at about four times the level of data that has been breached this year to date compared to last year. So, it is definitely a problem.”

The PYMNTS Intelligence report “Leveraging AI and ML to Thwart Scammers” found that 43% of the fraudulent transactions that financial institutions report are authorized fraud. Beyond the increased risk of cyberattacks, per Hsu, the “sheer breadth” of various banking relationships also leads to vulnerabilities.

Proliferation of Partnerships and Extended Risks

“Particularly challenging is the proliferation of bank partnerships and arrangements with nonbank third parties, who in turn often partner and rely on fourth parties,” said Hsu, adding that “the dynamic nature of interactions between banks and nonbank financial institutions and technology firms (FinTechs), which compete, support and rely on banks to varying degrees, has led to an increasingly complex nexus between banking and commerce.”

Against that backdrop, Hsu pointed to the practice of bank supervision as a “craft” — reliant on technology but also aided by a “nimble ‘team of teams’ approach” that examines liquidity, market and cyber risks across a cohort of banks.

This holistic, horizontal approach has been discussed within PYMNTS’ coverage.

Featurespace founder Dave Excell told PYMNTS in July that banks and financial institutions can combat fraud more effectively when they share information. Multi-enterprise dialogue can catch scams that might slip through when looking at activity at a single bank.

The Federal Reserve also has been developing a scam classifier model and creating frameworks for data sharing between institutions, he said.

Nick Fleetwood, head of data services at Form3, told PYMNTS in January that a “collaborative network” can help build and constantly refine robust information flows that help safeguard banks.

“[I]f you have everyone contributing to a data model, you’re able to score risk in real time” based on a consortium effort,” he said.

This holistic approach lets financial institutions determine whether to let a payment go through, or whether to raise new prompts to slow things down and make sure the account holders are genuine.

Intellicheck’s Lewis told PYMNTS in April that Intellicheck is actively exploring a consortium approach to fighting digital identification fraud, envisioned as an interoperable network where financial institutions can share trust and verification outcomes.