• Home
  • Education
  • News and Resources
  • Advocacy
  • Associate Members
  • Contact
  • Search
  • Menu Menu
News
Compliance, News

The Fed’s FraudClassifier Model — A Powerful Tool for Countering Fraud’s Increasing Threat

The global pandemic has created many hits to the financial system. One of these is rising fraud rates, which could create unrecoverable losses to banks of all sizes. Suspicious Activity Report (SAR) filings for all types of fraud are up substantially, with wire transfer fraud filings rising almost 40% last year over 2019 (FinCEN SAR Stats). Managing this risk means strengthening the control environment — improving policies and procedures, beefing up and targeting employee training, and implementing effective monitoring and reporting to executives and the board of directors. Making these efforts successful requires an accurate risk assessment, necessitating accurate and complete fraud data across all channels and payment rails. Building better fraud data is where the FraudClassifierSM Model can help. 

Each type of payment has its own rules and methods for identifying fraud and resolving cases, making the tabulation of fraud across an institution, or even defining what is or is not fraud nearly impossible. As envisioned by multiple Fed districts and built with the help of a broad workgroup of industry thought leaders, including banks, third parties, government agencies, and others, FraudClassifier solves this problem. The Fed released the final model in summer 2020, and adoption has begun at financial institutions of all sizes. By allowing for the proper measurement of fraud risk, the model significantly strengthens the risk assessment process. The model categorizes fraud across all payment methods, creating a broad, holistic look across an entire organization.  

The model begins by asking who initiated the payment, unlike the rules of payment associations, which focus on who committed the fraud and how. The benefit is categorization becomes agnostic of the payment rail. By dividing categories between authorized and un-authorized parties, and in the next step asking about the method of fraud, the model delineates meaningful categories, eight for authorized parties and four for unauthorized.  These fourteen categories are the finished product and describe the fraud committed — what and who — providing powerful insights into fraud trends by creating standard definitions across all payments. 

FraudClassifier is entirely voluntary and for internal use. There is no mandate that a bank adopt the model and no fixed time frame to do so. The data generated is for a bank’s internal use, not for law enforcement or industry statistics. A bank could choose to share FraudClassifier data, but there is no intention to make it mandatory. After the model becomes widespread, it could become more common for examiners to ask for resulting data, but there is no intent to require it. 

While core providers and other processing platforms have begun discussing incorporating the model into their products, none has to date. For now, tracking the model’s results and tabulating categories will rely on homegrown solutions — a spreadsheet or a more full-featured reporting and analytics solution. Depending on the size of the bank and rates of fraud, a spreadsheet could work just fine to start. 

The Fed has established a timeline for implementation, targeting 2022 and 2023 for widespread adoption. Depending on a bank’s size and complexity, it could take a few months or more to implement the model, and for data management purposes, year-end is a convenient time to do it. So, for many, it’s not yet too late for 2022. Such a project would require buy-in from the board and senior management, setting up a team to work out the details, solving the tracking problem, and training the appropriate staff. Ongoing requirements likely mean evolving the implementation team into a more permanent workgroup. Periodic meetings, perhaps quarterly, would ensure that things stay on track. And, of course, someone needs to be the internal champion for the model. The right person for that role will vary, possibly from the back office, a compliance person, or another appropriate resource. An employee that already has responsibility for fraud monitoring at the bank is an obvious choice. 

FraudClassifier is the first industry-wide attempt to improve risk management by making fraud classifiable across all payment types. Banks that use the model will establish better controls and manage real risks by compiling complete, meaningful fraud data. While the use of the model will remain voluntary, its benefits may become clear enough that one day it may be unusual to find a bank that has not implemented it.

Bauer is FVP/Compliance, BSA & Security at Bankers' Bank, a WBA Gold Associate Member.

By, Cassie Krause

Print 🖨
August 17, 2021/by Jose De La Rosa
Tags: Associate Members
Share this entry
  • Share on Facebook
  • Share on Twitter
  • Share on WhatsApp
  • Share on Pinterest
  • Share on LinkedIn
  • Share on Tumblr
  • Share on Vk
  • Share on Reddit
  • Share by Mail
https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg 0 0 Jose De La Rosa https://www.wisbank.com/wp-content/uploads/2021/09/Wisconsin-Bankers-Association-logo.svg Jose De La Rosa2021-08-17 13:52:522021-10-13 15:07:10The Fed’s FraudClassifier Model — A Powerful Tool for Countering Fraud’s Increasing Threat
You might also like
Enroll in an UnitedHealthcare Association Health Plan and Save
Triangle BackgroundExecutive Letter: Affordable Housing Community Fund Available to WBA Members Through Cinnaire
Triangle BackgroundWBA Welcomes New Associate Members in 2022
Triangle BackgroundTen Years of Midwest Bankers Insurance Services
The Evolution of Information Technology
Vaccination CardAre Banks Required to Comply with the Federal Contractor COVID-19 Vaccination Mandate?
Cinnaire Awarded $55 Million New Markets Tax Credit Allocation from CDFI Fund
Triangle BackgroundUnder Pressure: Cost of Funds Strategies in a Rising Rate Environment

Categories

  • Advocacy
  • Community
  • Compliance
  • Credit Unions
  • Education
  • Member News
  • News
  • Products
  • Resources
  • Uncategorized

Recent Posts

  • Nelson Celebrates 30 Years at National Exchange Bank & Trust
  • Bakalars to Retire
  • PWSB Mortgage Lenders Receive the Five Star Mortgage Professional Award
  • Executive Letter: Wisconsin Supreme Court Upholds Priority of Secured Creditor Under Receivership Rules
  • Peshtigo National Bank Announces Promotions

Archives

  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • December 2020
  • November 2020
  • October 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • May 2019
  • April 2019
  • March 2019
  • November 2018
  • September 2018
  • August 2018
  • June 2018
  • April 2018
  • March 2018
  • January 2018
  • November 2017
  • October 2017
  • September 2017
  • May 2017
  • April 2017
  • December 2016
  • November 2016
  • August 2016
WBA logo
  • About
  • Community
  • Subsidiaries
  • Staff

questions@wisbank.com

608-441-1200

4721 S Biltmore Ln.
Madison, WI 53718

Get our Newsletter!
Subscribe

© 2023 Wisconsin Bankers Association. All rights reserved. | Website Design by Bizzy Bizzy
Bank On Greater Milwaukee Program Aims To Bring Unbanked People Into the Mainstream...Identity Theft Notifications from DOR
Scroll to top

This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies.

OKLearn more×

Cookie and Privacy Settings



How we use cookies

We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.

Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.

Essential Website Cookies

These cookies are strictly necessary to provide you with services available through our website and to use some of its features.

Because these cookies are strictly necessary to deliver the website, refusing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.

We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.

We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.

Other external services

We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.

Google Webfont Settings:

Google Map Settings:

Google reCaptcha Settings:

Vimeo and Youtube video embeds:

Privacy Policy

You can read about our cookies and privacy settings in detail on our Privacy Policy Page.

Terms of Use
Accept settingsHide notification only

Subscribe

* indicates required








Membership