The Regulators Are Fighting A New Wave Of Fraud

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How to beat the new fraud wave in payments

How to beat the new fraud wave in payments

Worldline deploys a powerful fraud-fighting strategy to proactively support clients through the entire Fraud Risk Management value chain

Paris, 19 June 2020 – Worldline, Atos subsidiary in e-payment and transactional services, advises issuers and acquirers how to prevent, detect, and react more proactively to the growing risk of fraud. In the position paper published today, Worldline outlines practical recommendations on how to re-assess the fraud risk in light of new threats it anticipates due the growth of the digital economy.

Following a period of decline in fraud, mainly due to the migration to EMV, Worldline now sees it slowly starting to increase and predicts that the increase will accelerate, if stronger security measures aren’t implemented. As ever, fraudsters actively seek out and exploit the weakest links in the system, and the evolving digital economy is creating new fraud threats and an increase in financial crime. Fraudsters have shifted from exploiting face-to-face to card-not-present transactions. According to the ECB, 60% of the total value of card fraud in Europe came from card-not-present payments (Card Fraud Report, Feb 2020). Countries most affected by fraud today are those with mature card markets with high e-commerce volumes (i.e. France and the UK).

Wolf Kunisch, Head of Financial Processing at Worldline says: “Now is the time for issuers and acquirers to re-assess their situation in order to review all relevant processes, tools and measures they already have in place. These may have delivered good results in the past, but the question they should ask now is, are they sufficient to cope with a new fraud wave which may impact all channels and new means of payment. We are convinced that a new approach is necessary to beat a new fraud wave and maintain the trust of consumers “.

Worldline solution

For more than 40 years, Worldline has been working on design and deployment of fraud-fighting strategies. As a result, it offers services, tools and fraud experts covering the entire Fraud Risk Management value chain.

As fraud becomes radically more complex, a “one-size-fits-all” approach is no longer sufficient in combating fraud. The constant need for greater flexibility and high-alert data accuracy can only be provided by an intelligence-based approach which links monitoring technology – both real-time and post-authorization – with business expertise and strong workflow capabilities, complemented by strong governance to support effective investigations. Acquirers and issuers will be able to select and customize the most appropriate solution, which will deliver these key benefits:

Financial Regulations

Do Regulations Keep Your Money Safer?

Financial regulations are laws that govern banks, investment firms, and insurance companies. They protect you from financial risk and fraud. But they must be balanced with the need to allow capitalism to operate efficiently.

As a matter of policy, Democrats advocate more regulations. Republicans promote deregulation.

Key Takeaways

  • Financial regulations protect consumers’ investments.
  • Regulations prevent financial fraud and limit the risks financial institutions can take with their investors’ money.
  • Financial regulators oversee three main financial sectors: banking, financial markets, and consumers.

Why Financial Regulations Are Important

Regulations protect customers from financial fraud. These include unethical mortgages, credit cards, and other financial products.

Effective government oversight prevents excessive risk-taking by companies. Regulations would have kept the Lehman Brothers’ failure from catching the government off-guard.

Laws like the Sherman Anti-Trust Act prevent monopolies from abusing their power.   Unregulated monopolies gouge prices, sell faulty products and stifle competition.

Without regulation, a free market creates asset bubbles.

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That occurs when speculators bid up the prices of stocks, houses, and gold. When the bubbles burst, they create crises and recessions.

Government protection can help some critical industries get started. Examples include the electricity and cable industries. Companies wouldn’t invest in high infrastructure costs without governments to shield them. In other industries, regulations can protect small or new companies. Proper rules can foster innovation, competition, and increased consumer choice.

Regulations protect social concerns. Without them, businesses will ignore damage to the environment. They will also ignore unprofitable areas such as rural counties.

When Regulations Pose a Threat

Regulations are a problem when they inhibit the free market. It’s the most efficient way to set prices. It improves corporate efficiency and lowers costs for consumers. In the 1970s, wage-price regulations distorted the market and caused stagflation.

Regulations can dampen economic growth. Companies must use their capital to comply with federal rules instead of investing in plant, equipment, and people.

Regulations aren’t effective against new types of products like credit default swaps.

Businesses create profitable products in unforeseen areas. Regulators keep up with the dangers these innovative products often introduce.

Some industry leaders become too cozy with their regulators. They influence them to create rules that benefit them and stifle competition.

Who Regulates the Financial Industry

There are three types of financial regulators.

Banking

Bank regulators perform four functions that maintain trust in the system.   First, they examine banks’ safety and soundness. Second, they make sure the bank has adequate capital. Third, they insure deposits. Fourth, they evaluate any potential threats to the entire banking system.

The Federal Deposit Insurance Corporation examines and supervises about 5,250 banks, more than half of the total system. When a bank fails, the FDIC brokers its sale to another bank and transfers depositors to the purchasing bank. The FDIC also insures savings, checking, and other deposit accounts.

The Federal Reserve oversees bank holding companies, members of the Fed Banking System, and foreign bank operations in the United States.

The Dodd-Frank Wall Street Reform and Consumer Protection Act strengthened the Fed’s power over financial firms. If any become too big to fail, it can be turned over to the Federal Reserve for supervision. The Fed is also responsible for the annual stress test of major banks. 

The Office of the Comptroller of the Currency supervises all national banks and federal savings associations.   It also oversees national branches of foreign banks.

The National Credit Union Administration regulates credit unions. 

Financial Markets

The Securities and Exchange Commission is at the center of federal financial regulations. It maintains the standards that regulate the stock markets. It reviews corporate filing requirements. It oversees the Securities Investor Protection Corporation. The SIPC insures customers’ investment accounts in case a brokerage company goes bankrupt.

The SEC also regulates investment management companies, including mutual funds.

It reviews documents submitted under the Sarbanes-Oxley Act of 2002. Most important, the SEC investigates and prosecutes violations of securities laws and regulations.

The Commodity Futures Trading Commission regulates the commodities futures and swaps markets. Commodities include food, oil, and gold. The most common swaps are interest rate swaps. The unregulated use of credit default swaps helped cause the 2008 financial crisis.

The Federal Housing Finance Agency was established by the Housing and Economic Recovery Act of 2008.   It supervises the secondary mortgage market. It oversees Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System. 

The Farm Credit Administration oversees the Farm Credit System.   It’s the largest U.S. farm lender.

Consumers

The Consumer Financial Protection Bureau is under the U.S. Treasury Department. It makes sure banks don’t overcharge for credit cards, debit cards, and loans. It requires banks to explain risky mortgages to borrowers. Banks must also verify that borrowers have an income.

List of Major Financial Regulations

In 1933, the Glass-Steagall Act regulated banks after the 1929 stock market crash. In 1999, the Gramm-Leach-Bliley Act repealed it. The repeal allowed banks to invest in unregulated derivatives and hedge funds. They could use depositors’ funds for their own gains.

In return, the banks promised to invest only in low-risk securities. They said these would diversify their portfolios and reduce the risk for their customers. Instead, financial firms invested in risky derivatives to increase profit and shareholder value.

As a result of deregulation, financial firms like Bear Stearns, Citigroup, and American International Group Inc. required billions in bailout funds in 2008.

The Sarbanes-Oxley Act of 2002 was a regulatory reaction to the corporate scandals at Enron, WorldCom, and Arthur Anderson. Sarbanes-Oxley required top executives to personally certify corporate accounts. If fraud was uncovered, these executives could face criminal penalties. At the time, many were afraid this regulation would deter qualified managers from seeking top positions.

Dodd-Frank prevents a repeat of the 2008 financial crisis. It creates an agency to review risks threatening the financial industry. It gives the Federal Reserve the authority to regulate large banks before they become “too big to fail.” It regulates hedge funds, derivatives, and mortgage brokers. The Volcker Rule bans banks from owning hedge funds or using investors’ funds to trade derivatives for their own profit. Dodd-Frank also created the CFPB.

How Regulations Affect the Markets

One of the arguments against regulations is that they can have unintended consequences. For example, in October 2020, the Federal Reserve required big banks to add more liquid assets.   That forced them to buy U.S. Treasury bonds so they could quickly sell them if another financial crisis loomed.

As a result, banks increased their holdings of bonds. In 2020, the increase in demand pushed ​yields on long-term Treasurys down.   Lower interest rates spurred lending but reduced demand for stocks. Bonds compete with the stock market for investors’ dollars. Although their returns are lower, they offer more security.

Trump’s Promise to Rollback Bank Regulations

In 2020, President Donald Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act.   It eased regulations on small banks.

The rollback means the Fed can’t designate these banks as too big to fail. They also aren’t subject to the Fed’s “stress tests.”   And they no longer have to comply with the Volcker Rule. Now banks with less than $10 billion in assets can, once again, use depositors’ funds for risky investments.

How business groups are fighting a wave of anti-plastic straw laws

Breaking News Emails

California became the first state last year to require that sit-down restaurants give plastic straws only to customers who request them. When seven states and a string of cities took up similar proposals this year, it appeared as if a wave was cresting in the fight to rein in plastic pollution.

But the new round of lawmaking has come with complications, including opposition from business and free enterprise groups, and a fight over which level of government should have the right to regulate single-use plastics. It’s still far from clear how far the anti-plastic revolution will spread.

The result is that environmental groups are celebrating the energy and attention focused on the issue, even as they worry that the legislation is being watered down or co-opted by business groups, which have advocated weaker regulations.

Cities and some companies move to ban plastic straws

“Just the fact we are pushing seven plastic-straw bills represents progress. At this time last year, there was nothing happening at the state level,” Alex Truelove, zero-waste director for consumer group U.S. PIRG, said. “But it’s a huge concern that we mostly are not seeing straw bans, but ‘upon request’ bills. And many of them are really weak because they exempt most situations where someone would get a straw.”

Some of the new state bills on the table this year limit straw regulations to sit-down restaurants, while allowing fast-food and fast-casual spots to hand out straws to everyone. Others include “pre-emption” language that prevents cities from passing their own, more restrictive rules about plastic straws. Those limits are backed by business groups including the Arlington, Virginia-based American Legislative Exchange Council (ALEC), a conservative business advocacy organization that helps states fight off what the group views as excessive regulation.

Despite opposition from restaurant and industry groups, progress on banning straws and other single-use plastics won’t be stopped, Kate Melges, who leads the anti-plastics campaign for Greenpeace, said via email.

“As people continue to learn about the environmental and health impacts of plastic pollution, progress is inevitable,” Melges said. “More and more cities and states are launching efforts to tackle single-use plastics, and even some of the country’s largest corporations are beginning to publicly acknowledge that reduction and reuse are needed to end this crisis.”

Growing momentum against plastic straws

More than a dozen cities moved last year to control the use of plastic straws, along with the “on request” law that California passed, which took effect Jan. 1. The pace of change has picked up in the new year, with more than 30 bills introduced in 22 states, according to Scott DeFife, vice president of government affairs for the Plastics Industry Association, which supports plastic manufacturers.

Groups such as PIRG and the nonprofit Environment America depict straws as a starting place for further controls on plastic pollution, which they say has reached crisis proportions. They cite research that shows more than 8 million tons of new plastic waste flows into the world’s oceans each year.

While the harm to marine mammals, sea turtles and fish has been the primary driver of the anti-plastic campaigns, activists more recently have increased their complaints about the potential human health impacts of plastic pollution. An alliance of environmental groups released a report earlier this month saying that plastics amount to a crisis “hiding in plain sight.”

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Straws are seen by some activists as a “gateway plastic” — highly visible but not essential to many consumers — that is a good target for initial legislation.

In 2020, Seattle became the first major city to ban plastic straws outright. Washington, D.C., followed, along with smaller cities including Alameda, Berkeley, Manhattan Beach and Oakland, California; Monmouth Beach, New Jersey; and Fort Myers, Florida.

A backlash to the bans

Plastic straw bans have faced opposition not just from business groups but also from disability advocates, who point out that some people need a straw to drink.

This year’s wave of new proposals thus mostly focus not on banning straws but on requiring that restaurants only give straws to customers who ask for them. Among the states considering that approach are Colorado, Connecticut, Florida, Montana, New Jersey, Oregon and Rhode Island.

But the laws differ markedly from state to state. In Oregon, amendments have been attached to one straw bill to limit it to sit-down restaurants with host seating, excluding fast-food and fast-casual establishments. Another amendment would prevent Oregon cities from passing more restrictive ordinances of their own, including those that would ban straws altogether.

Oregon environmental groups don’t like a law that would prevent cities from experimenting with straw bans. “It’s never been implemented anywhere in the state of Oregon,” a memo from three environmental groups said, “thus prescribing the statewide solution, definitively with pre-emption, is poor policy before we’ve implemented on the ground in at least one city.”

In Colorado, which is also considering a straws-on-request law, an attempted amendment to prevent cities from passing their own rules led the bill’s sponsor to dump the proposal earlier this week.

The amendment taking away local authority on the issue of plastics appeared redundant, in any event, because Colorado had approved a law in 1993 preventing municipalities from regulating the use of plastics, said Harlin Savage, communications director for Eco-Cycle, a zero-waste advocacy group. Boulder and other cities were prepared to take action to limit plastic usage, but were blocked from doing so by the state law.

“It’s definitely had a chilling effect on cities that want to take significant actions to reduce plastic waste,” Savage said.

Cities are a key place to experiment with new environmental policies, since they can try out restrictions and make changes more closely tailored to the needs of their communities, and typically can act more quickly than state or federal governments, said Debbie Raphael, director of the San Francisco Department of the Environment.

“In the climate we are in today, cities very much understand they can be at the forefront of policy on toxics or plastics or climate change,” Raphael said. “These pre-emptive actions by states strike at the heart of our ability to have an engaged, democratic system.”

The source of the opposition

The Plastics Industry Association, representing manufacturers, has supported “on-request” straw laws as a “reasonable compromise” that attends to both the goal of reducing waste and the goal of meeting the needs of consumers, particularly those with disabilities. The Plastics Industry Association’s DeFife said the group opposes outright bans on straws but has not taken a position on whether cities should be pre-empted from action by states.

ALEC — motto: “Limited government, free markets, federalism” — has encouraged the pre-emption bills as a way of supporting businesses. On its website, the group offers boilerplate language for a bill that would allow states to ban cities from regulating bags and other containers made of plastic or other materials.

The draft law says local regulations on single-use packaging could create “confusing and varying regulations that could lead to unnecessary increased costs for retail and food establishments to comply with such regulations.”

Environmental groups argue that stricter plastic regulations are necessary because decades of attempts to recycle plastics have failed miserably, with the Environmental Protection Agency reporting in 2020 that only 9 percent of all plastics were recycled.

But the plastic industry trade group says that recycling systems and waste management policies simply need to be updated. Ultimately, the market should be able to decide whether plastic products are used, the group says.

“We look at what is going to give the most freedom to our constituents,” said Jon Russell, national director of the American City County Exchange, a division of ALEC. Laws governing plastics, he said, “are just government muddling up an individual’s right or liberty to use those particular items the way they see fit.”

Environmentalists said the business group is less interested in individual freedoms than in propping up corporate polluters and their profits. Greenpeace is among the organizations saying it will fight the attempts to take regulation of plastics away from local governments.

“Local communities should be able to tackle the plastic pollution crisis in their own cities and states,” said Melges, of Greenpeace’s anti-plastics campaign, “without D.C. lobbyists parachuting into state capitals to shut them down.”

James Rainey is a reporter for NBC News, based in Los Angeles.

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