WBA Legal has prepared a new toolkit to help senior management, commercial lenders, loan processors, compliance officers, and others involved with small business lending to better understand the impact of CFPB’s recently proposed small business rule on the bank. Once finalized, the requirement to collect and report certain data about small business credit applicants will have a dramatic impact on current application and processing operations and record retention.  

A PowerPoint summarizing CFPB’s proposed rule has been created for use by staff who seek to present the main components of the proposal to lending and processing staff. The PowerPoint provides a background, proposed compliance dates, information regarding covered financial institutions, definition of small business, minority-owned and women-owned business, definition of covered application and covered credit transaction, what data must be collected, and reporting information.  

In addition to the PowerPoint, the toolkit also includes a complete outline of the proposed rule, including the proposed commentary and several appendices. CFPB’s proposed rule summary and a data point chart are also included.  

CFPB is accepting comments regarding its proposal. WBA hopes each bank will take into consideration the information provided in this toolkit, assess the proposal’s impact on the bank, and provide comment to CFPB regarding such impact.  

WBA Legal will be creating a draft comment letter for use by members to reply to CFPB regarding concerns and impact of the proposal on banks. WBA encourages each bank to consider submitting its own letter reflecting bank-specific information.  

Feel free to contact WBA Legal at wbalegal@wisbank.com regarding CFPB’s proposal.

As bankers seek resources for how best to manage and mitigate risks associated with ransomware and other malicious code, don’t forget about the free resources offered by the Conference of State Bank Supervisors (CSBS) which include a ransomware self-assessment tool and resource guide.

The Ransomware Self-Assessment Tool (R-SAT) has 16 questions designed to help banks reduce the risks of ransomware. The Bankers Electronic Crimes Taskforce (BECTF), State Bank Regulators, and the United States Secret Service developed the tool. It was developed to help banks assess their efforts to mitigate risks associated with ransomware and identify gaps for increasing security. The tool provides executive management and the board of directors with an overview of the bank’s preparedness towards identifying, protecting, detecting, responding, and recovering from a ransomware attack.

The resource guide titled CSBS Executive Leadership of Cybersecurity (ELOC) Resource Guide, or “Cybersecurity 101,” is tailored to furnish executives with the necessary tools to better understand and prepare for the threats faced by their bank. The guide addresses challenges faced by both banks and nonbanks and is intended as an easily digestible, non-technical reference guide to help executives develop a comprehensive, responsive cybersecurity program in line with best practices. As each bank is different, the advice in the guide can be easily customized to meet each bank’s unique threats, priorities, and challenges. While the resource guide does not guarantee prevention, it attempts to identify various resources — people, processes, and tools and technologies — that, when properly leveraged, work to reduce a bank’s cybersecurity risk. 

Ransomware Self-Assessment Tool

The Resource Guide

Best Practices for Banks: Reducing the Risk of Ransomware (Developed by the Bankers Electronic Crimes Task Force)

By WBA Legal

In late August, the Board of Governors of the Federal Reserve System (FRB), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) issued a new resource titled, Conducting Due Diligence on Financial Technology Companies, A Guide for Community Banks (Guide), which was intended to help community banks in conducting due diligence when considering relationships with fintech companies.

Use of the Guide is voluntary, and it does not anticipate all types of third-party relationships and risks. Therefore, a community bank can tailor how it uses relevant information in the Guide, based on its specific circumstances, the risks posed by each third-party relationship, and the related product, service, or activity (herein, activities) offered by the fintech company.

While the Guide is written from a community bank perspective, the fundamental concepts may be useful for banks of varying size and for other types of third-party relationships. Due diligence is an important component of an effective third-party risk management process, as highlighted in the federal banking agencies’ respective guidance; which, for FRB-regulated banks is SR Letter 13-19, for FDIC-regulated banks is FIL-44-2008, and for OCC banks is Bulletin-2013-29.

During due diligence, a community bank collects and analyzes information to determine whether third-party relationships would support its strategic and financial goals and whether the relationship can be implemented in a safe and sound manner, consistent with applicable legal and regulatory requirements. The scope and depth of due diligence performed by a community bank will depend on the risk to the bank from the nature and criticality of the prospective activity. Banks may also choose to supplement or augment their due diligence efforts with other resources as appropriate, such as use of industry utilities or consortiums that focus on third-party oversight.

The Guide focuses on six key due diligence topics, including relevant considerations and a list of potential sources of information. The following is a summary of the key due diligence topics within the Guide.

Business Experience and Qualifications

The agencies have identified that by evaluating a fintech company’s business experience, strategic goals, and overall qualifications, a community bank can better consider a fintech company’s experience in conducting the activity and its ability to meet the bank’s needs. Review of operational history will provide insight into a fintech company’s ability to meet a community bank’s needs, including, for example, the ability to adequately provide the activities being considered in a manner that enables a community bank to comply with regulatory requirements and meet customer needs.

Review of client references and complaints about a fintech company may provide useful information when considering, among other things, whether a fintech company has adequate experience and expertise to meet a community bank’s needs and resolve issues, including experience with other community banking clients. Review of legal or regulatory actions against a fintech company can be indicators of the company’s track record in providing activities.

When a community bank is considering a third-party relationship, discussing a fintech company’s strategic plans can provide insight on key decisions it is considering, such as plans to launch new products or pursue new arrangements (such as acquisitions, joint ventures, or joint marketing initiatives). A community bank may subsequently consider whether the fintech company’s strategies or any planned initiatives would affect the prospective activity. Further, inquiring about a fintech company’s strategies and management style may help a community bank assess whether a fintech company’s culture, values, and business style fit those of the community bank.

The agencies further instruct that understanding the background and expertise of a fintech company’s directors and executive leadership may provide a community bank useful information on the fintech company’s board and management knowledge and experience related to the activity sought by the community bank. A community bank may also consider whether the company has sufficient management and staff with appropriate expertise to handle the prospective activity.

For example, imagine that a fintech company, its directors, or its management have varying levels of expertise conducting activities similar to what a community bank is seeking. A fintech company’s historical experience also may not include engaging in relationships with community banks. As part of due diligence, a community bank may therefore consider how a fintech company’s particular experiences could affect the success of the proposed activity and overall relationship. Understanding a fintech company’s qualifications and strategic direction will help a community bank assess the fintech company’s ability to meet the community bank’s expectations and support a community bank’s objectives. When evaluating the potential relationship, a community bank may consider a fintech company’s willingness and ability to align the proposed activity with the community bank’s needs, its plans to adapt activities for the community bank’s regulatory environment, and whether there is a need to address any integration challenges with community bank systems and operations.

Financial Condition

Another step the agencies identified is for a bank to evaluate a fintech company’s financial condition to help the bank assess the company’s ability to remain in business and fulfill any obligations created by the relationship. Review of financial reports provide useful information when evaluating a fintech company’s capacity to provide the activity under consideration, remain a going concern, and fulfill any of its obligations, including its obligations to the community bank. Understanding funding sources provide useful information in assessing a fintech company’s financial condition. A fintech company may be able to fund operations and growth through cash flow and profitability or it may rely on other sources, such as loans, capital injections, venture capital, or planned public offerings.

Additionally, information about a fintech company’s competitive environment may provide additional insight on the company’s viability. Review of information on a fintech company’s client base can shed insight into any reliance a fintech company may have on a few significant clients. A few critical clients may provide key sources of operating cash flow and support growth but may also demand much of a fintech company’s resources. Loss of a critical client may negatively affect revenue and hinder a fintech company’s ability to fulfill its obligations with a community bank. A community bank may also consider a fintech company’s susceptibility to external risks, such as geopolitical events that may affect the company’s financial condition.

For example, some fintech companies, such as those in an early or expansion stage, have yet to achieve profitability or may not possess financial stability comparable to more established companies. Some newer fintech companies may also be unable to provide several years of financial reporting, which may impact a community bank’s ability to apply its traditional financial analysis processes. When audited financial statements are not available, a community bank may want to seek other financial information to gain confidence that a fintech company can continue to operate, provide the activity satisfactorily, and fulfill its obligations. For example, a community bank may consider a fintech company’s access to funds, its funding sources, earnings, net cash flow, expected growth, projected borrowing capacity, and other factors that may affect a fintech company’s overall financial performance.

Legal and Regulatory Compliance

The Guide further outlines how in evaluating a fintech company’s legal standing, its knowledge about legal and regulatory requirements applicable to the proposed activity, and its experience working within the legal and regulatory framework, better enables a community bank to verify a fintech company’s ability to comply with applicable laws and regulations.

A bank may want to consider reviewing organizational documents and business licenses, charters, and registrations as such documentation provides information on where a fintech company is domiciled and authorized to operate (for example, domestically or internationally) and legally permissible activities under governing laws and regulations. Reviewing the nature of the proposed relationship, including roles and responsibilities of each party involved, may also help a community bank identify legal considerations. Assessing any outstanding legal or regulatory issues may provide insight into a fintech company’s management, its operating environment, and its ability to provide certain activities.

A bank could also consider reviewing a fintech company’s risk and compliance processes to help assess the fintech company’s ability to support the community bank’s legal and regulatory requirements, including privacy, consumer protection, fair lending, anti-money-laundering, and other matters. A fintech company’s experience working with other community banks may provide insight into the fintech company’s familiarity with the community bank’s regulatory environment. Reviewing information surrounding any consumer-facing applications, delivery channels, disclosures, and marketing materials for community bank customers can assist a community bank to anticipate and address potential consumer compliance issues. Considering industry ratings (for example, Better Business Bureau) and the nature of any complaints against a fintech company may provide insight into potential customer service and compliance issues or other consumer protection matters.

For example, some fintech companies may have limited experience working within the legal and regulatory framework in which a community bank operates. To protect its interests, community banks may consider including contract terms requiring (a) compliance with relevant legal and regulatory requirements, including federal consumer protection laws and regulations, as applicable; (b) authorization for a community bank and the bank’s primary supervisory agency to access a fintech company’s records; or (c) authorization for a community bank to monitor and periodically review or audit a fintech company for compliance with the agreed-upon terms. Other approaches could include (1) instituting approval mechanisms (for example, community bank signs off on any changes to marketing materials related to the activity), or (2) periodically reviewing customer complaints, if available, related to the activity.

Risk Management and Controls

The agencies have also identified that by banks evaluating the effectiveness of a fintech company’s risk management policies, processes, and controls, such review helps a community bank to assess the company’s ability to conduct the activity in a safe and sound manner, consistent with the community bank’s risk appetite and in compliance with relevant legal and regulatory requirements.

Banks should consider reviewing a fintech company’s policies and procedures governing the applicable activity as it will provide insight into how the fintech company outlines risk management responsibilities and reporting processes, and how the fintech company’s employees are responsible for complying with policies and procedures. A community bank may also use the information to assess whether a fintech company’s processes are in line with its own risk appetite, policies, and procedures. Information about the nature, scope, and frequency of control reviews, especially those related to the prospective activity, provides a community bank with insight into the quality of the fintech company’s risk management and control environment. A community bank may also want to consider the relative independence and qualifications of those involved in testing. A fintech company may employ an audit function (either in-house or outsourced). In these cases, evaluating the scope and results of relevant audit work may help a community bank determine how a fintech company ensures that its risk management and internal control processes are effective.

Banks should also consider the findings, conclusions, and any related action plans from recent control reviews and audits as the information may provide insight into the effectiveness of a fintech company’s program and the appropriateness and timeliness of any related action plans. Evaluating a fintech company’s reporting helps a community bank to consider how the fintech company monitors key risk, performance, and control indicators; how those indicators relate to the community bank’s desired service-level agreements; and how the fintech company’s reporting processes identify and escalate risk issues and control testing results. A community bank may also consider how it would incorporate such reporting into the bank’s own issue management processes. Review of information on a fintech company’s staffing and expertise, including for risk and compliance, provide a means to assess the overall adequacy of the fintech company’s risk and control processes for the proposed activity.

Information on a fintech company’s training program also assists in considering how the fintech company ensures that its staff remains knowledgeable about regulatory requirements, risks, technology, and other factors that may affect the quality of the activities provided to a community bank.

For example, a fintech company’s audit, risk, and compliance functions will vary with the maturity of the company and the nature and complexity of activities offered. As a result, a fintech company may not have supporting information that responds in full to a community bank’s typical due diligence questionnaires. In other cases, a fintech company may be hesitant to provide certain information that is considered proprietary or a trade secret (for example, their development methodology or model components). In these situations, a community bank may take other steps to identify and manage risks in the third-party relationship and gain confidence that the fintech company can provide the activity satisfactorily.

For example, a community bank may consider on-site visits to help evaluate a fintech company’s operations and control environment, or a community bank’s auditors (or another independent party) may evaluate a fintech company’s operations as part of due diligence. Other approaches could include (a) accepting due diligence limitations, with any necessary approvals and/or exception reporting, compared to the community bank’s normal processes, commensurate with the criticality of the arrangement and in line with the bank’s risk appetite and applicable third-party risk management procedures; (b) incorporating contract provisions that establish the right to audit, conduct on-site visits, monitor performance, and require remediation when issues are identified; (c) establishing a community bank’s right to terminate a third-party relationship, based on a fintech company’s failure to meet specified technical and operational requirements or performance standards. Contract provisions may also provide for a smooth transition to another party (for example, ownership of records and data by the community bank and reasonable termination fees); or (d) outlining risk and performance expectations and related metrics within the contract to address a community bank’s requirements

Information Security

In understanding a fintech company’s operations infrastructure and the security measures for managing operational risk, a community bank may better evaluate whether the measures are appropriate for the prospective activity. A community bank may evaluate whether the proposed activity can be performed using existing systems, or if additional IT investment would be needed at the community bank or at the fintech company to successfully perform the activity. For example, a community bank may evaluate whether the fintech company’s systems can support the bank’s business, customers, and transaction volumes (current and projected). A fintech company’s procedures for deploying new hardware or software, and its policy toward patching and using unsupported (end-of-life) hardware or software, will provide a community bank with information on the prospective third party’s potential security and business impacts to the community bank.

For example, fintech companies’ information security processes may vary, particularly for fintech companies in an early or expansion stage. Community banks may evaluate whether a fintech company’s information security processes are appropriate and commensurate with the risk of the proposed activity. Depending on the activity provided, community banks may also seek to understand a fintech company’s oversight of its subcontractors, including data and information security risks and controls.

For a fintech company that provides transaction processing or that accesses customer data, for example, community banks may request information about how the fintech company restricts access to its systems and data, identifies and corrects vulnerabilities, and updates and replaces hardware or software. The bank may also consider risks and related controls pertaining to its customers’ data, in the event of the fintech company’s security failure. Also, contractual terms that authorize a community bank to access fintech company records can better enable the bank to validate compliance with the laws and regulations related to information security and customer privacy.

Operational Resilience

A community bank may evaluate a fintech company’s ability to continue operations through a disruption. Depending on the activity, a community bank may look to the fintech company’s processes to identify, respond to, and protect itself and customers from threats and potential failures, as well as recover and learn from disruptive events. It is important that third-party continuity and resilience planning be commensurate with the nature and criticality of activities performed for the bank.

Evaluating a fintech company’s business continuity plan, incident response plan, disaster recovery plan and related testing can help a community bank determine the fintech company’s ability to continue operations in the event of a disruption. Also, evaluating a fintech company’s recovery objectives, such as any established recovery time objectives and recovery point objectives, helps to ascertain whether the company’s tolerances for downtime and data loss align with a community bank’s expectations. A community bank that contemplates how a fintech company considers changing operational resilience processes to account for changing conditions, threats, or incidents, as well as how the company handles threat detection (both in-house and outsourced) may provide a community bank with additional information on incident preparation. Discussions with a fintech company, as well as online research, could provide insights into how the company responded to any actual cyber events or operational outages and any impact they had on other clients or customers.

Understanding where a fintech company’s data centers are or will reside, domestically or internationally, helps a community bank to consider which laws or regulations would apply to the community bank’s business and customer data. Another matter for a community bank to consider is whether a fintech company has appropriate insurance policies (for example, hazard insurance or cyber insurance) and whether the fintech company has the financial ability to make the community bank whole in the event of loss.

Service level agreements between a community bank and a fintech company set forth the rights and responsibilities of each party with regard to expected activities and functions. A community bank may consider the reasonableness of the proposed service level agreement and incorporate performance standards to ensure key obligations are met, including activity uptime. A community bank may also consider whether to define default triggers and recourse in the event that a fintech company fails to meet performance standards.

A fintech company’s monitoring of its subcontractors (if used) may offer insight into the company’s own operational resilience. For example, a community bank may inquire as to whether the fintech company depends on a small number of subcontractors for operations, what activities they provide, and how the fintech company will address a subcontractors’ inability to perform. A community bank may assess a fintech company’s processes for conducting background checks on subcontractors, particularly if subcontractors have access to critical systems related to the proposed activity.

For example, as with previous due diligence scenarios, fintech companies may exhibit a range of resiliency and continuity processes, depending on the activities offered. Community banks may evaluate whether a fintech company’s planning and related processes are commensurate with the nature and criticality of activities performed for the bank. For example, community banks may evaluate a fintech company’s ability to meet the community bank’s recovery expectations and identify any subcontractors the fintech company relies upon for recovery operations. A fintech company may have recovery time objectives for the proposed activity that exceed the desired recovery time objectives of a community bank. If a fintech company can meet the community bank’s desired recovery time objectives, the bank may consider including related contractual terms, such as a contract stipulation that the community bank can participate in business continuity testing exercises and that provides appropriate recourse if the recovery time objective is missed in the event of an actual service disruption.

A community bank may also consider appropriate contingency plans, such as the availability of substitutable service providers, in case the fintech company experiences a business interruption, fails, or declares bankruptcy and is unable to perform the agreed-upon activities. In addition to potential contractual clauses and requirements, a community bank’s management may also consider how it would wind down or transfer the activity in the event the fintech company fails to recover in a timely manner.

Conclusion

The agencies have outlined a number of relevant considerations, non-exhaustive lists of potential sources of information, and illustrative examples to assist community banks with identifying strengths and potential risks when considering relationships with fintech companies. The voluntary Guide helps provide a starting point for banks with their due diligence efforts. The Guide may be viewed here.

Highlighted Special Focus From the October 2021 Compliance Journal

Cybersecurity graphic

By Cassandra Krause 

With a recent uptick in activity, ransomware attacks are a form of cyberattack that has been prevalent in recent news — and for good reason. The effects can be detrimental in terms of monetary loss and reputational damage to the victim. Ransomware is a type of malicious software (a.k.a. malware) that usually encrypts a victim’s files, and the bad actors have upped their game to steal the data first, then threaten to also publish the data to the public. Criminals set their sights on businesses with the goal of extorting money, making community banks prime targets. 

Organized crime networks are becoming increasingly sophisticated. In general, the risk of getting caught for cybercrimes is much lower than for traditional crimes like robbery, and the financial gains are far higher. Ransomware developers write and sell the software to other bad actors for a cut of the profits when they deploy it and collect ransom payment, usually in the form of cryptocurrency, which is hard to trace. Compromised data may also be used to open fraudulent lines of credit. 

“The U.S. is in a ransomware crisis right now,” said Jeff Otteson, vice president of sales at Midwest Bankers Insurance Services (MBIS), a subsidiary of the Wisconsin Bankers Association. He explained that it has created a hard insurance market with carriers tightening up on internal control requirements such as multifactor authentication (MFA) for privileged users (users with the ability to install software or change security settings on critical systems) and encryption of backups. 

In their 2021 Cost of a Data Breach Report, IBM Security and the Ponemon Institute calculate that the average total cost of a data breach is $4.24 million, a 10% increase from 2020–2021. The per-record cost of personally identifiable information averaged $180. 

Prevention 

With the incredibly high stakes in mind, banks are dedicating significant resources to preventing malicious cyberactivity, both in terms of staff and money. Respondents to a 2020 Deloitte survey of financial institutions reported spending about 10.9% of their IT budget on cybersecurity on average, up from 10.1% in 2019. In terms of spending per employee, respondents spent about $2,700 on average per full-time employee (FTE) on cybersecurity in 2020, up from about $2,300 the prior year. 

“There is an industry-standard framework for ransomware prevention and all cybersecurity,” explained FIPCO’s Director InfoSec and Audit Ken Shaurette. FIPCO is also a WBA subsidiary. A good consultant will walk the bank through a comprehensive review of their network security, improving endpoint protection to replace traditional antivirus and endpoint detection solutions, including adding authentication improvements such as MFA, improved password strength, and protecting backups. As more and more of the digital tools that bankers utilize require users to download and install software and updates, depending on signature-based solutions for malware detection is not acceptable — it has become critical to safeguard user, file, network, and device-level activities. 

A bad actor gaining access to a bank’s data may encrypt the data and demand payment in exchange for granting access back to the bank. In this situation, having a data backup is essential.  

“The rule of thumb for data backups is 3-2-1,” said FIPCO Information Security and IT Audit Advisor Rob Foxx. “There should be three copies of all data stored on two different mediums. One of the copies should be stored off site.” 

Ransomware prevention is only one part of a complete cybersecurity system. Experts agree that early detection of unusual activity within a system can help keep a minor incident from quickly escalating into a major incident like a ransomware threat. 

“Ransomware isn’t the first attack,” said Wolf & Company, P.C. Manager of the I.T. Assurance Group Sean Goodwin, who recently presented at WBA’s Secur-I.T. Conference. “Ultimately, it’s on I.T. to put controls in place because an employee will inevitably fall for a phishing email. It becomes a question of whether we can catch that quickly.” 

Social engineering remains the greatest concern; it’s easier for bad actors to trick an employee rather than break through a firewall. Verizon’s 2021 Data Breach Investigations Report found that almost half of the breaches in the financial services industry involved internal actors committing various types of errors. The report stated that the financial sector frequently faces credential and ransomware attacks from external actors, 96% of which are financially motivated (followed by small percentages of motives of espionage, grudge, fun, and ideology). 

Goodwin emphasized that I.T. must be able to act quickly when there’s an indication that someone is accessing something they don’t normally access. “Prevention is ideal. If we can prevent it, that’s best-case scenario, but if not, early detection becomes critical,” he said. This area of solution, known as endpoint detection and response, is rapidly becoming a key point of protection from ransomware and all other malicious events. 

Establishing an incident response program within a bank is an important part of the overall cybersecurity program. 

Preparation 

Creating a culture of cybersecurity awareness throughout the bank is important, so that bank employees are prepared for an incident. Employee training on what to do in the event of an attack should be standard practice. Making security part of the organization’s DNA is a best practice. 

“Every bank needs an incident response plan, and that needs to be approved all the way up through the board. Part of this plan is notification of incidents to the insurance carrier,” said MBIS’s Otteson. 

FIPCO’s Foxx emphasized that the roles and responsibilities in the incident response plan must be clearly defined, and banks should revisit their plan regularly.  

“As the insurance agent, I’m the first call a bank makes when there’s an incident,” said Otteson. “It’s important that banks choose to work with an agency that understands cyber insurance.”  

MBIS insures about 220 banks and has access to a large number of carriers that provide the right coverage for their customers. Otteson recommends reporting all incidents as even a minor incident could result in a claim down the line and having reported that incident when it occurred is key to a successful claim. He says to keep in mind that the owner of the data is liable for it whether the incident occurred in house or with a vendor the bank shared customer data with. 

Mitigation 

It’s important to work with the insurance carrier to ensure that all the bases are covered and that the vendors who participate in the response are approved. Not using the cyber insurance carrier’s approved vendors may result in expenses not being covered under the insurance policy. In the event of a ransomware attack, the insurance agent or bank will immediately notify the insurance carrier. Beazley, a carrier partner of MBIS, maintains a 24/7 helpline, which has become common with other carriers as well. Knowing how to report incidents, when to report, and what to expect is key. 

Holidays and weekends are prime times for ransomware attacks: employees who are in a rush to leave may be more likely to click on a bad link, and with employees away from work, it’s easier for the bad actors to get into the network. Even if a problem is detected, it’s more likely that staff who could help put a stop to the attack may be on vacation or unavailable, buying the criminals more time to take over. 

As soon as a cyber liability claim is made, the insurance carrier’s pre-approved vendors come into play.  

“Nobody has the resources in house to effectively manage ransomware attacks,” said Foxx, who has experience working both within a bank and as an external auditor and consultant. The specialization of skills and the amount of people needed to perform adequate analysis and remediation are so significant that even large banks will not have all the players they need on staff. 

If a bank’s data becomes encrypted and made inaccessible, a vendor such as Tetra Defense would be engaged on forensics. Managed endpoint detection and response vendors such as Cynet can help from detection and prevention to response, including providing digital evidence for a vendor performing forensics. Meanwhile, a vendor such as Coveware would handle ransom negotiations with the criminals. Wolf & Company, P.C.’s Goodwin said that you don’t really know who’s on the other side of the transaction — some criminals may be willing to negotiate and others not. He referred to ransomware as a “niche space in cybersecurity that is now getting more attention.” The criminal organizations involved in these types of attacks in some ways act like a legitimate business in that they rely on their reputation and may even have customer service departments — if they fail, it will hurt their chances of getting more business in the future.  

Typically, in the event of a ransomware attack, a legal firm will handle communications and PR for the bank — putting a statement on the bank’s website, assisting staff with customer phone calls, and determining whom to notify. Getting legal involved early protects all communications and discovery with attorney-client privilege. The requirements for notification vary from state to state, and a bank may have customers in multiple states or even other countries, making the expertise of a legal team invaluable. The language used in communications matters, as the term “breach,” for example, can have different legal implications and potentially create larger issues than terms like “incident,” “situation,” or “event.” Education of staff far in advance using regular testing of the plan is a key factor in mitigating an incident. Inappropriate statements made by employees on social media or even at informal social gatherings can have severe ramifications for the bank. 

Follow Up 

While anyone who experiences a ransomware attack may be eager to breathe a sigh of relief and move on when it is over, it is essential to review the incident and revise the bank’s incidence response plan. Assessing what went well and what needs to be improved are critical steps.  

Goodwin also warns that victims of ransomware are commonly re-targeted. A Cybereason study found that 80% of organizations that previously paid ransom demands confirmed they were exposed to a second attack. He said that once a company has paid a ransom it is known that (1) you were compromised, (2) you do not have proper backups of your files, and (3) you were willing to pay. 

Summary 

Cyberattacks are the biggest risk to a financial institution — even surpassing the risk of past-due loans. The cost of a ransomware attack can be astronomical, with many factors contributing to the price tag, including vendor fees and staff hours to resolve the issue; the cost to inform customers and offer identity or other protections; the loss of destructed data; and the down time of the business. All of this, followed by the loss of customers’ trust (and subsequent loss of their business), has the potential to put a community bank out of business.  

There are safeguards banks can put in place, including a sound incident response plan, improved monitoring with better endpoint detection and response, cyber liability coverage, and employee education. FIPCOMBIS, and a wide range of WBA Associate Members are ready to support banks in keeping their data and that of their customers safe.  

Cannabis

Join us on Thursday, November 4 in Stevens Point for the WBA BOLT Winter Leadership Summit! BOLT (Building Our Leaders of Tomorrow) is a great opportunity for current and emerging leaders to come together and learn from both peers and industry experts. The summit connects community bankers from around Wisconsin for one day full of education and networking. All WBA member banks are encouraged to identify their emerging leaders and register them to participate in WBA BOLT events as an investment in their future with your bank.

BOLT provides an environment where energized and motivated WBA-member bankers have an opportunity for peer networking, educational growth, and leadership development, helping to expand their leadership roles. Community bank leaders will interact with and learn from each other and discuss current industry challenges. Knowing how to respond quickly to changes in the industry is key for leaders when many of these issues are complex and here to stay.

Always rated highly by attendees, this winter summit will once again host small peer group discussions based on various roles and areas of interest within banking, allowing for bankers to share their experiences, ask questions, learn from others, and make lifelong banking connections. The summit will also feature interactive keynote sessions led by national speakers.

Look for more information about the other keynotes and breakout sessions at www.wisbank.com/BOLT.

WBA hosts BOLT summits twice a year, so watch for the next Summer Leadership Summit! This past June, over 115 current and future leaders of Wisconsin’s banking industry gathered for networking and education with sessions on building economic inclusion in our state, taking your career to the next level, thriving in challenging times, and re-engaging your team after and during a pandemic.

The Winter Leadership Summit is only one day out of the office with the low registration fee of $100 per attendee for your emerging leaders to make connections and grow their professional skills! Hotel accommodations with special BOLT rates are also available for attendees.

Visit www.wisbank.com/BOLT to register your emerging leaders today.

The long awaited proposed rule regarding the collection and reporting of small business lending data as required by Section 1071 of the Dodd-Frank Act has finally been released by the Bureau of Consumer Financial Protection (CFPB). Unfortunately, the proposed rule is as broad and onerous as the industry expected it to be as it will be costly to train, implement, and monitor. The proposal would revise Regulation B, which implements the Equal Credit Opportunity Act (ECOA), to require the collection and reporting to CFPB certain data on applications for credit by small businesses. The proposal is substantial; however, below is a brief summary of the proposed rule.

Who Must Collect Data

The first step of analysis for any proposal is to identify whether it will apply to the bank. In this case, the proposal is broad and will very likely apply to all banks in Wisconsin. As proposed, if a bank originates at least 25 credit transactions that are considered “covered credit transactions” to “small businesses” in each of the two preceding years, the proposed rule will apply to the bank. Generally, a “small business” under the proposal is a business that had $5 million or less in gross annual revenue for its preceding fiscal year.

What CFPB has proposed be considered a “covered credit transaction” is a bit trickier an analysis but is generally the same as what is considered an application under the existing Regulation B definition of “application.” The proposed term does; however, exclude reevaluation requests, extension requests, or renewal requests on an existing business credit account, unless the request seeks additional credit amounts; also excluded is an inquiry or prequalification request.

What Data is to be Collected

Next, the data to be collected. Dodd-Frank Act Section 1071 identified certain data that must be collected by CFPB; the law also gave CFPB discretion to collect additional data. CFPB has incorporated all Dodd-Frank Act required data and several discretional data into its proposal. In particular, banks must collect a unique identifier of each application, application date, application method, application recipient, action taken by bank on the application, date action taken, denial reasons, amount applied for, amount originated or approved, and pricing information including interest rate, total origination charges, broker fees, initial annual charges, additional cost for merchant cash advances or other sales-based financing, and prepayment penalties.

Banks must also collect credit type, credit purpose, information related to the applicant’s business such as census tract, NAICS code and gross annual revenue for applicant’s preceding fiscal year, number of applicant’s non-owner workers, applicant’s time in business, and number of applicant’s principal owners.

There is also demographic information about the applicant’s principal owners to collect. These data points include minority- and women-owned business status, and the ethnicity, race, and sex of the applicant’s principal owners. The proposal also requires banks to maintain procedures to collect applicant-provided data at a time and in a manner that is reasonably designed to obtain a response, addresses how banks are to report certain data if data are not obtainable from an applicant, when banks are permitted to rely on statements made by an applicant, when banks must verify applicant’s responses to certain data collected, and when banks may reuse certain data collected in certain circumstances such as when data was collected within the same calendar year as a current covered application and when the bank has no reason to believe the data are inaccurate.

When and How Data Must be Reported

Banks would be required to collect data on a calendar-year basis and report the data to CFPB by June 1 of the following year. CFPB has proposed to provide technical instructions for the submission of data in a Filing Instructions Guide and related materials.

The submitted data is also to be made available to the public on an annual basis. Banks would be required to make the reported data available on their website, or otherwise upon request, or must provide a statement that the bank’s small business lending application register is available on CFPB’s website. Model language for such statement has been proposed by CFPB.

Limit of Certain Bank Personnel’s Access to Certain Data

The proposed rule implements a requirement under Section 1071 that banks limit certain employees’ and officers’ access to certain data. CFPB refers to this as the “firewall.” Pursuant to the proposed rule, an employee or officer of a bank or bank’s affiliate who are involved in making any determination concerning the applicant’s covered application would be prohibited from accessing an applicant’s responses to inquiries that the bank made regarding whether the applicant is a minority- or woman-owned business. Such employees are also restricted from information about an applicant’s ethnicity, race, and sex of the applicant’s principal owners.

There are exceptions to the requirement if it is not feasible to limit such access, as that factor is further set forth in the proposal. If an exception is permissible under the proposal, notice must be given to the application regarding such access. Again, CFPB has created model language for such notice.

Recordkeeping and Enforcement

The proposal establishes certain recordkeeping requirements, including a three year retention period for small business lending application registers. The proposal also includes a requirement to maintain an applicant’s responses to Section 1071 inquiries regarding whether an applicant is a minority- or women-owned business, and responses regarding the ethnicity, race, and sex of the applicant’s principal owners, separate from the rest of the application and accompanying information.

The proposal does include enforcement for violations of the new rules, addresses bona fide errors, and provides for a safe harbor.

Learn More and Get Involved

The proposal and additional information, including a chart of the proposed data collection points, may be viewed at: https://www.consumerfinance.gov/rules-policy/rules-under-development/small-businesslending-data-collection-under-equal-credit-opportunity-act-regulation-b/

WBA will comment on the proposal and will create a template letter for bankers to use in providing their own comments to CFPB regarding the impact the proposal will have on the bank. Comments are due 90 days from publication of the proposed rule in the Federal Register. At time of publication of the article, the proposal had not yet been published. CFPB has proposed mandatory compliance of a final rule be eighteen months after its effective date. WBA Legal is creating a working group to collect data and concerns from Wisconsin’s bankers on the proposal. If you wish to be part of the working group, please contact WBA Legal at wbalegal@wisbank.com.

This article originally ran in the September 2021 edition of the WBA Compliance Journal, to view the entire publication, click here.

Models white big wooden houses with a miniature house in the center

The Federal Housing Administration (FHA) announced earlier this week new and extended COVID-19 relief options for borrowers recently or newly struggling to make their mortgage payments because of the pandemic and for senior homeowners with Home Equity Conversion Mortgages (HECMs) who need assistance to remain in their homes. The measures respond to the continued impacts of the pandemic and are part of FHA’s continuing evolution of its COVID-19 policies so that the right tools are in place to help borrowers.

Specifically, FHA made the following changes, effective September 27:

  • A new COVID-19 Forbearance or HECM Extension period for borrowers who may be newly affected by the pandemic: FHA is now providing up to six months of COVID-19 Forbearance for borrowers requesting an initial COVID-19 Forbearance or HECM Extension from their mortgage servicer between October 1, 2021, and the end of the COVID-19 National Emergency, and an additional six months if the COVID-19 Forbearance or HECM Extension is exhausted and expires before the end of the COVID-19 National Emergency.
  • An additional COVID-19 Forbearance or HECM Extension period for borrowers recently seeking assistance: FHA is now providing up to six months of additional forbearance for borrowers who requested or will request an initial COVID-19 Forbearance or HECM Extension from their mortgage servicer between July 1, 2021, and September 30, 2021, allowing these borrowers up to a maximum of 12 months of COVID-19 Forbearance or HECM Extension.

FHA urges those who are behind on their mortgage payments or are having difficulty complying with the terms of their Home Equity Conversion Mortgage (HECM), and have not yet contacted their mortgage servicer, to do so immediately. By contacting their servicer, homeowners can obtain a mortgage payment COVID-19 forbearance or a HECM extension. FHA also urges homeowners to engage with their mortgage servicer when their mortgage servicer contacts them about the new COVID-19 Advance Loan Modification (ALM) or any other COVID-19 loss mitigation home retention options. Homeowners who are seeking more information on the options available to them should also consider contacting a HUD-approved housing counseling agency.

The announcement and a helpful chart summarizing available FHA Forbearance programs is available here.

By Scott Birrenkott

The Wisconsin Bankers Association has provided a resource to assist homeowners with questions regarding options as forbearance periods end and the pandemic still lingers. Generally, there are a few ways borrowers can make up their missed payments. However, the method of repayment can vary depending on the loan. Not all borrowers will be eligible for all options. Borrowers are encouraged to ask their servicer about available options.

Download: Assistance for Homeowners in Forbearance

 

Rose Oswald PoelsBy Rose Oswald Poels

This year, WBA formed a Diversity, Equity, and Inclusion (DEI) Advisory Group of bankers from around the state to inform and propel our association’s efforts forward. One of the initiatives identified by the Advisory Group is supporting banks in developing and evolving their DEI policies. In my conversations with WBA members, it is evident that bankers understand that fostering a positive environment for all employees and customers is not only the right thing to do, but also a wise business decision that can improve talent recruitment and retention, spark innovation, and bolster your bottom line.

You don’t need to be an “expert” to start a DEI initiative at your bank. To paraphrase what one of our Advisory Group members so eloquently shared in a meeting, having the heart gives you the authority to speak on something you care about. Sincerity is key as people bring their own unique perspectives and learn from each other.

Banks across Wisconsin are at different stages in their DEI journeys, and the best approach often differs from one institution to another. For banks that are looking to put their values and commitment in writing, WBA and the DEI Advisory Group have created a customizable DEI Sample Policy. The sample policy is designed to serve as a template or discussion prompt to help banks develop and maintain a DEI framework that fits their organization’s specific mission, values, and strategy. Banks that already have a DEI policy in place may also find the sample policy useful as they regularly revisit and update their policy.

The DEI Sample Policy is one of the things you will find on WBA’s new DEI Resources webpage. We will continue to build this page out with more tools to help banks engage in DEI-related topics.

Please also consider participating or designating someone from your team to be involved in the new WBA Connect DEI peer group. Membership in the WBA Connect DEI group comes with access to the group’s exclusive online peer-to-peer listserv, and four peer connection meetings per year.

There are many facets of diversity, which span far beyond the quick definitions of race and gender. The attention we devote to DEI enriches our workplaces and communities. Thank you for all you are doing to reflect on your journey and take action to foster a culture of inclusiveness.