June 6, 2011
Who does what in fighting payments crimes? Explaining the acronyms and roles of agencies
My grandmother always enjoyed a good laugh. I fondly remember her laughter as we listened to Abbott and Costello's comedy sketch "Who's on First?" multiple times during every visit to her home. I must admit that at times I can feel like Costello when discussing the many different organizations (and their related acronyms) that play a role in regulatory and legal oversight of financial-related crimes. Though not necessarily as funny as Abbott and Costello's sketch, the multitude of organizations and their related acronyms in the United States and the roles they play as they relate to financial-related crimes are enough to make even Costello think that St. Louis's lineup is a breeze to follow. In an effort to allay some of this confusion, let's examine several organizations involved in the fight against financial and payments-related crimes.
Financial Crimes Enforcement Network (FinCEN)
FinCEN was established in 1990 by the U.S. Department of the Treasury. FinCEN is responsible for issuing and administering rules and regulations governing the reporting of currency and foreign transactions as defined in Title II of the Bank Secrecy Act. Title III of the USA Patriot Act gives FinCEN additional responsibilities that include developing rules and regulations related to due diligence and surveillance of suspected terrorists and those engaging in criminal activities.
FinCEN works with law enforcement and regulatory agencies to deter and detect terrorist financing, money laundering, and other financial criminal activity through the sharing of data collected from institutions, as prescribed by the Bank Secrecy Act and the USA Patriot Act. Though FinCEN develops regulations that financial institutions must follow, the agency does not have any oversight powers, so it has to rely on other regulatory/supervisory organizations to ensure that financial institutions comply with their rules and regulations.
Financial institution regulators/supervisors
The Federal Financial Institutions Examination Council (FFIEC) was established to prescribe uniform principles, standards, and report forms for the examination of financial institutions. The organization or agency that regulates a particular financial institution depends on the type of institution. The FFIEC attempts to ensure uniformity in the supervision and regulation of financial institutions, regardless of the supervising agency.
The Office of the Comptroller of the Currency (OCC) is responsible for supervising national banks. State-chartered banks are under the supervision of a state regulatory agency. If they are members of the Federal Reserve System, they also receive supervisory oversight from the supervision and regulation arm of the Federal Reserve, typically rotating examination cycles with the state regulatory authority where they are chartered. The Federal Reserve is also the regulator for financial holding companies, with supervisory oversight for all organizations and their activities within the holding company.
The Federal Deposit Insurance Corporation (FDIC) participates in regulatory oversight for state-chartered banks that do not join the Federal Reserve System to lessen the burden on state agencies. Most importantly, the FDIC engages in reviews of both state and national banks should their troubled condition present a threat to the deposit insurance fund.
Credit unions are supervised by the National Credit Union Administration (NCUA). Before merging with the OCC, the Office of Thrift Supervision (OTS) supervised the U.S. thrift industry. Under this merger, the OTS will be phased out by July 2011. The Federal Reserve Board will then take over the supervisory role of thrift holding companies, and the OCC will supervise all federal thrifts.
In their supervisory roles, these agencies ensure that financial institutions have Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance programs in place as prescribed by FinCEN and that financial institutions comply with other rules and regulations established by FinCEN and other bodies, such as state and national governments.
Law enforcement organizations
Though the United States Secret Service is best known for protecting the president, it is also responsible for investigating financial crimes that include counterfeiting of cash and U.S. treasury securities, access device fraud, financial institution fraud, identity theft, and computer fraud. The Secret Service often works side-by-side with the Federal Bureau of Investigation (FBI), which investigates Internet fraud, identity theft, and money laundering, among many other crimes types. In investigating and detecting financial crimes, these agencies rely heavily on data from FinCEN obtained from the financial institutions' filings of suspicious activity reports. While both the Secret Service and FBI tend to focus on larger, high-profile crimes, local and state law enforcement agencies also play a critical role in leading the investigation of similar but smaller financial crimes as well as assisting the national organizations on larger crimes.
The role of the Retail Payments Risk Forum
In this web of organizations, guidelines, rules, and regulations, the Retail Payments Risk Forum (the Risk Forum) seeks to facilitate collaboration among participants in the payments industry. The Risk Forum has been successful in filling a critical and neutral role in bringing together members from the Federal Reserve System, bank regulatory agencies, rule-enacting agencies, law enforcement, and the payments industry for dialogue and information sharing. Furthermore, members of the Risk Forum are actively engaged in providing "boots on the ground" surveillance on service developments and emerging risk issues in retail payments systems.
As new payments risks take root and new organizations such as the Consumer Financial Protection Bureau (CFPB) emerge, it is imperative that these parties continue to engage with each other to effectively combat the growing threat of risk and fraud in the U.S. payments system.
This table summarizes the roles of the agencies.
By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
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