Regulatory Risk Regulatory risk is yet another significant concern. As overseers roll out stringent regulations aimed at protecting consumers, the cost of compliance grows. Failure to meet regulatory standards can result in sanctions, fines and mandates for expensive corrective measures. Moreover, non-compliance can lead to enhanced scrutiny by regulators and the possibility of heightened requirements in the future. The Financial Crimes Enforcement Network (FinCEN) has listed fraud and cybercrime as two of their National AML/CFT Priorities. According to FinCEN, fraud is believed to represent the largest share of illicit proceeds in the United States. Cybercrime, specifically, is one of the most significant threats posed to financial institutions. This is the first time fraud has been addressed at a high level as part of AML compliance, but it makes sense. Proceeds from fraudulent activity must be laundered, so there is a direct correlation. Now is the time to be sure that your fraud, AML and IT security teams collaborate and keep each other informed on illicit trends they are detecting. With fraud now considered an AML/CFT priority, regulatory penalties and fines related to fraud may be something to consider in future exams. Regulators are expecting financial institutions to address each of the priorities in their AML/CFT program. Any deficiencies will garner criticism and possibly monetary penalties. Fraud Risk Management Financial institutions must approach fraud with a comprehensive strategy that accounts for direct financial loss, resource allocation and the broader implications on client value, reputation and regulatory standing. It is an ongoing battle requiring vigilance, innovation and a commitment to safeguarding all stakeholders. Things to consider include: • Hardware: Is your business data safe, and are updates and patches applied in a timely manner? • Software: Do you have adequate fraud detection and monitoring systems? Are you able to detect various types of illicit activity, such as check, wire and ACH fraud? • People: Do your investigators receive proper training? Do they have the correct skill set to detect complex patterns of fraudulent activity? • Client education: Does your institution have avenues for client education, such as written materials, online warnings or in-person seminars for clients and prospects? If not, this is a great way to foster community goodwill and deter fraud at the same time. Conclusion Understanding and addressing the nature of fraud is paramount for financial institutions in today’s complex economic landscape. The surge in fraudulent activities demands a robust and dynamic approach to deterrence and detection. Institutions must invest not only in advanced security measures and skilled personnel but also in client education and community engagement to combat fraud effectively. The true cost of fraud extends far beyond direct financial losses, and the commitment to combating fraud is not just a regulatory necessity. It is a critical aspect of maintaining the integrity and sustainability of the U.S. financial system. WE MAKE IT EASY LET OUR TEAM HELP YOU SECURE THE DEAL AND LOWER YOUR RISK • UP TO 90% OVERALL FINANCING • UP TO 25 YEAR TERM • FIXED-RATE PREFERREDLENDINGPARTNERS.COM | 303.861.4100 Leveraged financing and refinancing of owner occupied real estate and long-term equipment. Most for-profit small businesses eligible. SBA defines businesses with net profit after tax <$5.0 Million and tangible net worth <$15.0 Million as small. 19 Colorado Banker
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