GAO recapped its "priority open recommendations" for the Federal Reserve Board ("FRB"). Highlighted recommendations concern FinTech, the Bank Secrecy Act ("BSA") and stress testing.
GAO stated that implementing these 23 open recommendations - seven "priority recommendations" - "could significantly improve the Federal Reserve's efforts to more effectively oversee risks to consumers and the safety and soundness of the U.S. banking system."
On FinTech, GAO identified two issues: (i) situations in which consumers should be reimbursed for losses resulting from unauthorized account activity; and (ii) the use of "alternative data" in making credit decisions and detecting fraud.
As to the BSA, GAO noted that banks were limiting services to customers, or ending customer relationships, when potential AML issues arise. GAO was concerned that these bank decisions may result in law-abiding customers being deprived of services.
GAO also highlighted recommendations concerning the FRB's (i) implementation of bank stress tests and (ii) management of emergency lending facilities.
Commentary Steven Lofchie
The GAO recommendations illustrate trade-offs inherent in many regulatory decisions. For example, the more demanding that regulators are as to AML reviews (and the tougher the punishments for AML failures), the more likely it is that a bank will determine not to do business with legitimate businesses. That is, banks will limit their exposure if they determine they cannot readily obtain information that insulates them from regulatory risk.
Originally published May 04, 2020.
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