FinCEN Strongly Encouraging Data Sharing to Fight Fraud
- FinCEN lets banks share suspected fraud data under Section 314(b) safe harbor.
- Guidance promotes real-time, cross-institution fraud alerts to disrupt fast-moving scams.
- Richer signal sharing improves detection and protection for institutions and customers.
Recently, we posted about warnings from the International Monetary Fund (IMF) that fraudsters thrive when FIs aren't sharing data. The IMF argued that AI and machine learning work best when they have access to large, diverse datasets, and that fragmented, siloed environments limit what those models can detect.
Coming off the heels of the warning, PYMNTS reports that the Financial Crimes Enforcement Network (FinCEN) is updating its Section 314(b) guidance, “strongly encouraging” financial institutions to participate in the program and treat information sharing as a core tool for managing illicit finance risk. FinCEN says the framework gives FIs the “flexibility and connectivity” needed to stop bad actors from exploiting gaps between banks, credit unions, and payment providers.
Unauthorized-party fraud — including credential theft and account takeover — now accounts for 71% of fraud incidents and dollar losses, according to PYMNTS Intelligence research done with Block. According to the report, “State of Fraud and Financial Crime in the United States,” fraudsters increasingly move across institutions rather than staying inside one, which makes isolated defenses less effective for both digital channels and paper-based items like checks.
How FinCEN’s Guidance Maps to Check Fraud
Those categories align directly with the signals FIs rely upon to detect deposit fraud, which leverages a multitude of behavioral analyzers to identify fraudulent deposits.
According to PYMNTS.com, 95% of institutions report using behavioral analytics and 89% use machine learning. With FinCEN now explicitly recognizing a wide range of data as appropriate to share under 314(b) -- including transaction information, video surveillance, cyber indicators such as IP and geolocation, device IDs, transaction-monitoring alerts and behavioral red flags like newly added payees followed by large transfers or geographically distant logins -- these technologies become more effective with the additional data available.
However, participating in the data-sharing program and executing will be more difficult than surface level. This intelligence will need to be stored in a centralized database that can be accessed by FIs and fraud vendors. APIs make its easier than ever to transfer data; however, if the location of the data and --maybe most importantly the integrity of the data, will be key for success.
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Many FIs are already participating in a data consortium -- or even multiple -- to leverage data from other FIs. However, the most successful FIs are utilizing an open consortium model. Open consortiums are open to FIs and other check processors including service bureaus. this enables FIs to leverage check transactions and data from other participating FIs as well as additional processors.
As fraudsters increasingly share information via platforms like Telegram, it's clear that fighting back will require effective collaboration among FIs and fraud vendors.