Detecting and Preventing Financial Fraud: Safeguarding Credit Unions

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As the financial services industry faces an unprecedented surge in attempted fraud, credit unions must strengthen their defenses to protect their assets and members’ data. Fraudsters continue to evolve their tactics, making it crucial for credit unions to adopt advanced technologies that can effectively detect and prevent fraudulent activities. In the battle against financial fraud, IMS’s Anomaly Detection service is a powerful tool, empowering credit unions to stay vigilant and combat fraudulent behavior effectively.

Let’s explore the current landscape of financial fraud and the key technologies credit unions can use for detection and prevention.

Addressing the Rising Tide of Financial Fraud

A TransUnion report has shed light on the alarming increase in attempted fraud within the financial services industry. Fraudsters have diversified their tactics, including money laundering, counter-terrorism fraud, synthetic identity theft through mule schemes, and peer-to-peer payment fraud. The constantly evolving market conditions contribute to the ever-increasing financial fraud risk, making it critical for credit unions to adopt proactive measures to detect and prevent fraudulent activities.

Recognizing the need for heightened security measures, 93% of credit unions have started funding security, authentication, or digital identity initiatives since 2021, according to research from PYMNTS.com. However, credit unions still lag behind other financial institutions in leveraging advanced technologies to combat financial fraud effectively. Traditional fraud prevention methods are no longer sufficient to counteract the speed and complexity with which fraudsters operate.

To fight this rising tide of financial fraud, credit unions and other financial institutions must leverage advanced technologies equipped with real-time monitoring capabilities. 

The Current Financial Fraud Landscape

Financial regulatory agencies, such as the U.S. Securities and Exchange Commission, the Federal Trade Commission, and the Financial Crimes Enforcement Network, have identified several prevalent fraud types that credit unions need to be vigilant about:

  • New Account Fraud: Criminals target accounts opened online or by phone to exploit vulnerabilities in the onboarding process.
  • Imposter Schemes: Fraudsters impersonate government agencies or other entities, offering fake services to deceive individuals and steal money or information.
  • Small Business Administration Loan Fraud: Schemes related to government initiatives like the Paycheck Protection Program and Economic Injury Disaster Loans have become a breeding ground for fraud.
  • Business Tax Credits Fraud: Criminals exploit tax credits intended for businesses for personal gain.

To address these incidents effectively, credit unions are increasingly focusing on key areas of risk mitigation. A PwC report highlighted data privacy and cybersecurity, the use of new technology, digital identity authentication, Anti Money Laundering (AML) efforts, Know Your Customer (KYC) procedures, and local regulatory pressures as key concerns for financial institutions.

Enhancing the Credit Union Business Model

While credit unions have historically been valued for their member-centric approach and personalized relationships, it is crucial to complement this model with a strong emphasis on digital solutions. Implementing strong authentication measures and investing in fraud prevention technology are important steps to prevent account takeovers and financial fraud. Unfortunately, many credit unions have been slow to adopt these technologies, making them prime targets for criminals.

Technologies Tackling Financial Fraud

To support their defenses against financial fraud, credit unions can leverage a range of advanced technologies, many of which rely on artificial intelligence and machine learning. These technologies play vital roles in fraud detection and prevention:

  • Member and Corporate Onboarding and Screening: AI-powered software can analyze member and corporate data in real time, identifying suspicious activities during the onboarding process.
  • Transaction Monitoring and Screening: Machine learning algorithms can monitor transactions in real-time, flagging unusual activities and potentially fraudulent behavior.
  • Transaction Fraud Detection: Advanced analytics and AI help detect fraud patterns, uncover hidden relationships among criminals, and reduce false positives. IMS’s Anomaly Detection solution, Polaris Radar, uses machine learning to actively monitor and generate alerts for suspicious activity. 
  • Sanctions and Watchlists Screening: AI-driven screening tools ensure compliance with regulatory requirements by identifying individuals or entities on watchlists.

By harnessing the power of artificial intelligence and machine learning, credit unions can achieve seamless, reliable, and strategic fraud and AML sanction compliance, significantly enhancing their ability to combat financial fraud.

Anomaly Detection: Empowering Credit Unions with Real-Time Fraud Detection

Detecting and preventing financial fraud is an ongoing challenge for credit unions and other financial institutions. With the threat landscape constantly evolving, embracing advanced technologies for real-time monitoring is crucial.

IMS’s Anomaly Detection service leverages the power of artificial intelligence and machine learning to analyze large volumes of transaction data. By establishing baseline behavioral patterns, the service can detect anomalies and deviations that might indicate fraudulent behavior. This proactive approach enables credit unions to identify potential threats swiftly and take decisive action to protect their members and financial assets.

Protect your credit union from the escalating threat of financial fraud. Explore IMS’s Anomaly Detection service today and connect with us at this link to find out how we can help meet your specific needs.

FedNow + Cloud: The Perfect Match for Credit Unions?

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The financial landscape is going through a significant shift with the launch of the Federal Reserve’s instant payments service, FedNow. Designed to enable real-time payment processing, this service is set to revolutionize the way financial institutions operate, driving them towards embracing cloud-based solutions, such as IMS’s Infrastructure-as-a-Service (IaaS). As credit unions try to keep up with the demands of real-time payments and deliver enhanced member experiences, the cloud is a key catalyst of innovation and growth.

Let’s dive into the impact of the FedNow launch on financial institutions and discover how cloud adoption can drive credit union evolution.

The FedNow Initiative: The Push Towards the Cloud

The FedNow service, set to revolutionize the payments ecosystem, has captured the attention of financial institutions across the United States. According to a recent report by PYMNTS.com, the launch of FedNow is pushing financial institutions to embrace the cloud. 

Real-time payment processing capabilities pose unique challenges and opportunities for credit unions. With payments happening instantly, credit unions must ensure their infrastructure can handle the volume of real-time data and transactions without disruptions. 

Here’s how the launch of FedNow is driving credit unions to embrace cloud-based solutions:

Scalability for the Modern Digital Landscape

Cloud computing empowers credit unions with a highly scalable infrastructure, tailor-made to meet the demands of real-time payments. With the ability to dynamically adjust resources based on transaction volumes, credit unions can ensure a seamless experience for their members, even during peak times.

Cost-Effectiveness and Resource Optimization

Cloud-based solutions offer credit unions a cost-effective approach to adopting cutting-edge technology. Unlike traditional on-premises systems that require significant upfront investments, cloud services such as IMS’s IaaS follow a pay-as-you-go model. This allows credit unions to allocate resources efficiently, focusing on providing value-added services to members without compromising their financial stability.

Enhanced Security and Fraud Prevention

Data security is critical. The FedNow service requires robust security measures to protect against fraud and data breaches. Cloud service providers invest heavily in security protocols, offering advanced data encryption and continuous threat monitoring. By leveraging cloud-based security solutions, credit unions can bolster their fraud prevention capabilities and safeguard sensitive financial data, earning their members’ trust.

Seamless Integration and Simplifying Member Experiences

Credit unions thrive on personalized member experiences, and the cloud’s seamless integration capabilities enable them to deliver just that. By connecting core banking systems and payment platforms with cloud-based solutions, credit unions can facilitate real-time payments through FedNow with minimal disruptions. This frictionless integration enhances member experiences and fosters loyalty.

Innovation and Future-Proofing Credit Unions

Beyond instant payments, the cloud opens doors to innovation for credit unions. With a flexible cloud infrastructure, credit unions can experiment with emerging technologies, such as artificial intelligence and machine learning. These technologies empower credit unions to optimize operations, personalize member interactions, and proactively detect and prevent fraud. Embracing the cloud future-proofs credit unions, ensuring they stay relevant and resilient.

Pioneering FedNow & Real-Time Payments with IMS’s IaaS Solution

After the official launch of FedNow last July 2023, credit unions find themselves on the verge of a digital revolution in real-time payments. While only a small portion of banks have taken the lead, credit unions can seize the opportunity to redefine their member services.

By embracing cloud-based technologies like IMS’s Infrastructure-as-a-Service, credit unions can leverage scalability, cost-effectiveness, enhanced security, and innovation to meet members’ growing expectations.

Connect with IMS today and revolutionize your credit union’s real-time payment capabilities.

Ransomware Attacks are Only Getting Faster: How to Secure Your Credit Union

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In cybersecurity, it’s a constant race with bad actors often seeming to be in the lead. But, with smart strategies and tools, credit unions can still effectively safeguard themselves.

Ransomware attacks are gaining momentum and complexity. These harmful software programs lock down access to computer systems or encrypt files, with attackers asking for a ransom to restore access. For credit unions that handle sensitive data, this threat is particularly concerning due to the potential monetary and reputational harm an attack can cause.

Ransomware Attacks: An Escalating Threat

Ransomware attacks have witnessed a steep rise in recent years. A shocking 75% of organizations reported being targeted by ransomware within the last year, with 38% experiencing multiple attacks, based on a survey from Barracuda Networks, Inc. The study further shared that email was the primary source for 69% of these ransomware attacks.

As ransomware continues to evolve and proliferate, new strains appear. One such example is the recently discovered Rorschach strain, one of the fastest on the market today.

In a trial conducted by Check Point on a 6-core machine with 22,000 files, all files were partially encrypted within 4.5 minutes by Rorschach. This rapid encryption speed dramatically reduces the available reaction time for a user or IT organization to a security breach, increasing the chances of a successful attack. Once successful, Rorschach can extend the ransomware to every machine in the domain, even if the initial attack targets just one machine.

Is Your Credit Union Equipped for This?

Despite the mounting prevalence of ransomware, more than 25% of companies do not feel adequately prepared to handle an attack. This feeling of unpreparedness tends to amplify as an organization grows larger, primarily due to the increased need for data protection and a larger surface to defend.

For credit unions, the aftermath of a ransomware attack can be catastrophic. Apart from the immediate financial setback from paying the ransom, there can be considerable costs associated with recovery, investigation, and system hardening post-attack. Plus, there’s the potential damage to reputation. Members trust credit unions with their sensitive financial data, and a breach could severely erode that trust.

6 Ways To Secure Your Credit Union Against Ransomware Attacks

So, how can credit unions protect themselves against this escalating cyber threat? Here are some practical strategies:

  1. Access Controls: By implementing strategies such as RBAC (Role-Based Access Control) or ABAC (Attribute-Based Access Control), you can ensure that each user only has the required level of access, preventing unauthorized data access.
  2. Password Policies: Adopt proper password policies that align with industry standards like NIST 800-63B and check for previously compromised account passwords.
  3. Multi-Factor Authentication (MFA): Incorporate two-factor authentication (2FA) or MFA to help reduce the risk of account compromises. MFA becomes particularly crucial for privileged accounts, as it bolsters account security even if a password gets stolen.
  4. Zero-Trust Architecture: Transition to a zero-trust architecture where every connection and action must be authorized and authenticated, eliminating the default trust granted to everything within a network.
  5. Penetration Testing: Carry out penetration testing to proactively identify and address potential security gaps.
  6. Data Backup: Maintain comprehensive data backups that cover your entire infrastructure, ensuring you can quickly recover your infrastructure and restore services and functionality even in the event of a ransomware attack.

Amplify Your Ransomware Defense with IMS’s Anomaly Detection

For credit unions aiming to boost their readiness and prevention against ransomware attacks, IMS offers Anomaly Detection powered by Polaris Radar technology. This advanced tool enables you to bounce back faster while enhancing your system’s intelligence. With Polaris Radar, you can track how your data evolves and moves, utilizing machine learning to identify and alert you of any unusual behavior. Enhance your cybersecurity strategy with the power of intelligent anomaly detection.

Is Your Credit Union Aware of These Bank Secrecy Act Violations?

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Financial transactions are increasingly digital and global. The importance of protecting credit unions from threats such as Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) violations cannot be overstated. These violations can undermine the integrity of financial institutions, erode trust, and expose credit unions to severe penalties. Understanding these violations, recognizing their signs, and proactively addressing them is critical.

The BSA and AML regulations were established to prevent and detect financial crimes, primarily money laundering and terrorist financing. These crimes are constantly evolving and your members trust you to protect them while serving their needs. To keep your credit union compliant and your members safe, it’s essential you understand these financial threats well.

Let’s dive in!

Common Bank Secrecy Act and Anti-Money Laundering Violations

BSA and AML violations can take many forms within a credit union. Here are 5 of the most frequent violations:

  1. Late 314(a) Searches: Credit unions often fail to complete 314(a) searches in a timely fashion. It’s essential for credit unions to keep their U.S. Patriot Act contacts up-to-date and verify these profiles whenever changes occur. They should also have clear policies outlining the process for handling Financial Crimes Enforcement Network (FinCEN) requests, filing suspicious activity reports (SARs), and conducting independent testing of 314(a) compliance.
  2. Inadequate BSA Training: Not all credit union board members and BSA officers receive proper BSA training. It’s crucial for new staff to be trained as soon as possible, including tailored examples of money laundering and suspicious activity monitoring. All training must be documented, including attendance records and corrective actions for those who fail to attend.
  3. No Independent Testing: Finding qualified in-house staff to conduct independent testing can be challenging. The National Credit Union Administration (NCUA) encourages credit unions to utilize BSA resource sharing as allowed by the Interagency Statement on Sharing Bank Secrecy Act Resources.
  4. Lack of Written and Approved BSA Compliance Program: BSA/AML compliance programs need to be written, approved by the board, and documented in board meeting minutes. These programs should include internal controls, independent testing, a designated BSA officer, appropriate personnel training, member due diligence, and a customer/member identification program.
  5. Noncompliant SAR and CTR Filings: Currency Transaction Reports (CTRs) are often not filed within the required 15 calendar days or for every cash transaction over $10,000. Similarly, SARs are frequently not filed within the mandated 30 or 60 days, and they often lack completeness and accuracy, particularly in the narratives.

Remember, BSA and AML violations can have serious consequences. By understanding these violations and taking proactive steps to prevent them, credit unions can provide a secure environment for their members while ensuring regulatory compliance.

Need more detailed information on BSA and AML regulations and how to avoid violations? Refer to these resources provided by CUNA and NCUA! Stay informed, stay compliant, and continue to serve your members with confidence and integrity.

Strengthen Your Bank Secrecy Act Compliance Strategy with IMS

Adhering to BSA and AML regulations is more than just a compliance requirement. It’s a crucial part of maintaining the trust of your members and preserving the reputation of your credit union. By understanding these regulations and taking proactive steps to prevent violations, you can protect your institution from hefty fines and damage to your reputation.

At IMS, we specialize in helping credit unions maintain compliance. Using Polaris Sonar, we apply machine learning to discover, classify, and report on sensitive data without impacting production. 

By partnering with IMS, you can focus more on serving your members and less on regulatory compliance worries and data security concerns. Contact us today if you have any questions or let us walk you through our services and their features, all made specifically with your credit union in mind!

Embracing Costovation: How Credit Unions Can Adopt Lean Business Practices

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In today’s rapidly changing financial landscape, credit unions face increasing competition from traditional banks and fintech companies. To stay relevant and continue providing exceptional member experiences, credit unions must find innovative ways to streamline their operations and reduce costs while maintaining high-quality services. One approach that has gained traction is costovation — a strategy that combines cost reduction with innovation. Let’s discuss the concept of costovation, its benefits, and why credit unions should embrace it to enhance member experience and stay competitive.

What is Costovation?

Costovation refers to the process of reducing costs while simultaneously improving products or services, resulting in an enhanced customer experience. It is about doing more with less, finding creative ways to deliver value without compromising quality. This approach can help credit unions differentiate themselves from competitors while maintaining efficiency and financial stability.

Benefits of Costovation for Credit Unions

By focusing on cost-effective innovations and streamlining processes, credit unions can offer better products and services tailored to the specific needs of their members. This can result in higher satisfaction levels and increased member loyalty.

Implementing costovation strategies can also help credit unions identify inefficiencies and optimize workflows. This can lead to reduced operational expenses and improved resource allocation, allowing credit unions to focus on member-centric initiatives.

As credit unions embrace costovation, they can develop unique offerings that set them apart from traditional banks and fintech companies. This differentiation can help credit unions attract new members and retain existing ones. But with the vast amount of data available, credit union data analytics and discovery is essential. Raw, unfiltered data is unhelpful because you’re unable to use it to discover new insights and inform your approach moving forward. 

This Credit Union National Association (CUNA) article goes into more detail on how costovation can help businesses innovate without the high price tag.

5 Ways Credit Unions Can Implement Costovation

  1. Embrace Digital Transformation: Adopting digital solutions can help credit unions automate manual processes, reduce costs, and enhance member experience. For instance, investing in Infrastructure-as-a-Service (IaaS) allows credit unions to leverage a flexible, scalable, and cost-effective infrastructure by outsourcing their computing resources, storage, and networking components to a third-party provider. 
  2. Leverage Data Analytics: Utilizing data analytics can help credit unions gain insights into member behavior and preferences, enabling them to develop targeted products and services. This can lead to increased member satisfaction and reduced operational costs by eliminating offerings that do not resonate with the target audience. It can also help credit unions avoid the pitfalls of bad data.
  3. Optimize Branch Operations: Credit unions should evaluate their branch networks to identify areas for improvement, such as consolidating underperforming branches or adopting lean staffing models. Additionally, implementing self-service kiosks or video teller machines can help reduce staffing costs and provide members with faster, more convenient service.
  4. Collaborate with Fintech Companies: Partnering with fintech companies can enable credit unions to access innovative solutions at a lower cost than developing them in-house. These collaborations can help credit unions enhance their product offerings, streamline operations, and improve member experiences.
  5. Invest in Employee Training and Development: By investing in employee training and development, credit unions can equip their staff with the skills and knowledge necessary to identify cost-saving opportunities and implement costovation strategies effectively.

Costovation in Action for Credit Unions

Some credit unions have simplified their loan application processes by leveraging digital platforms and data analytics, resulting in reduced processing times and improved member satisfaction.

Another common example of costovation is the introduction of remote deposit capture technology, which has allowed credit unions to reduce costs associated with processing paper checks while providing members with a convenient way to deposit funds.

By participating in shared branching networks, credit unions can offer their members access to a wider range of services and locations without incurring the costs associated with operating additional branches.

Costovation is an innovative approach that can help credit unions reduce costs, improve efficiency, and enhance member experience. By embracing costovation strategies, credit unions can differentiate themselves from competitors, attract new members, and ensure long-term financial stability. Ultimately, adopting costovation can lead to the development of lean businesses that people love, fostering a strong sense of community and loyalty among credit union members.

Costovation for your Credit Union with IMS Infrastructure-as-a-Service (IaaS)

Infrastructure-as-a-Service (IaaS) can play a vital role in helping credit unions implement costovation strategies. This approach eliminates the need for credit unions to invest heavily in on-premises hardware and maintenance, resulting in reduced capital expenditure and operational costs. By adopting IaaS, credit unions can allocate their resources more efficiently, focusing on member-centric initiatives and delivering better services without compromising on quality.

In addition to cost savings, IaaS also promotes innovation by providing credit unions with the agility and flexibility to quickly scale their infrastructure as needed, enabling them to respond to market changes and member demands more effectively. With access to state-of-the-art technology and tools, credit unions can develop and deploy new products and services faster, enhancing their competitiveness and member experience. 

By embracing IaaS with IMS as part of their costovation strategy, credit unions can build leaner, more agile organizations that are better equipped to adapt to the evolving financial landscape and deliver exceptional value to their members. Connect with us today if you have any questions or let us discuss our solutions tailored to your credit union!

The Impact of Recent Changes to SBA 7(a) and 504 Lending Programs on Credit Unions

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The Small Business Administration (SBA) recently made changes to the 7(a) and 504 lending programs, which have the potential to negatively affect credit unions and their borrowers. These changes aim to increase participation in the programs but experts believe it may inadvertently create challenges for credit unions and small businesses. Today we’ll be diving into the recent changes, their implications for credit unions, and the importance of staying informed about these developments.

Understanding the SBA’s 7(a) and 504 Lending Programs

The SBA’s 7(a) and 504 loan programs are designed to help small businesses access capital for various purposes, such as starting or expanding their businesses, purchasing equipment, or refinancing existing debt. The 7(a) program provides loans with flexible terms and conditions, while the 504 program focuses on financing fixed assets like real estate and equipment.

Recent Changes to the SBA’s 7(a) and 504 Lending Programs

The SBA has finalized a rule that introduces several changes to the 7(a) and 504 programs. Some of the key changes include expanded eligibility criteria, updates to ownership requirements and improvements to debt financing options.

The SBA has expanded the eligibility criteria for the 7(a) program, allowing more businesses to qualify for loans. Additionally, the agency has modified the affiliation rules for determining a borrower’s size, which could result in more businesses being considered small and eligible for SBA loans.

Under the new rule, a change in ownership involving a partial buyout of an existing owner’s interest in a business will no longer require SBA approval. This change streamlines the process and reduces the administrative burden on borrowers and lenders.

The SBA has also made improvements to the debt refinancing options available under the 504 program. These changes aim to make it easier for small businesses to refinance their existing debt and access additional capital.

Impact on Credit Unions and Borrowers

While the changes to the SBA’s 7(a) and 504 lending programs may seem beneficial at first glance, they have the potential to negatively impact credit unions and their borrowers. Here are some of the key concerns:

  • Increased Competition: The expanded eligibility criteria may result in increased competition among lenders for SBA loans. This could make it more difficult for credit unions to compete with larger financial institutions, particularly when it comes to offering competitive rates and terms to borrowers.
  • Higher Risk for Credit Unions: As more businesses become eligible for the 7(a) program, credit unions may face higher risks associated with a larger pool of borrowers. This could lead to potential financial challenges for credit unions, especially if borrowers struggle to repay their loans.
  • Challenges for Small Business Borrowers: As credit unions face increased competition and potential financial challenges, small business borrowers may find it more difficult to obtain affordable loans through these programs. This could hinder the growth and success of small businesses that rely on SBA loans for financing.

The recent changes to the SBA’s 7(a) and 504 lending programs have the potential to create challenges for credit unions and their borrowers. By staying informed about these developments and adapting accordingly, credit unions can continue to support small businesses and foster economic growth in their communities.

Optimize Credit Union Lending Processes with Data Archiver

As credit unions face increased loan limits and altered eligibility criteria, efficient data management becomes crucial for maintaining compliance with SBA requirements, tracking loan performance, and optimizing lending practices. IMS’s DataArchiver can play an essential role in helping credit unions adapt to these changes by ensuring secure storage, organization, and retrieval of vital information. By offering a secure and centralized platform for managing data, DataArchiver allows credit unions to easily access relevant information, generate reports, and make informed decisions based on historical data.

Aside from data management, mitigate potential risks associated with the changes to the 7(a) and 504 lending programs by providing robust data backup and disaster recovery features. In the event of data loss or system failure, IMS solutions ensure that credit unions can quickly recover crucial information, minimizing downtime and potential financial losses.

By leveraging comprehensive cloud solutions by IMS, credit unions can confidently navigate the challenges posed by the changes in the 7(a) and 504 lending programs, maintain compliance, and continue to support small businesses in their communities. Let’s talk about how we can serve your unique needs!

Important Credit Union Regulatory Hot Topics

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As a credit union, staying up to date on regulatory trends and concerns is crucial to ensure compliance and avoid penalties. With the ever-changing landscape of financial regulations, it can be challenging to keep track of the latest developments. That’s why we’ve compiled a list of key credit union regulatory hot topics to help you navigate through the current environment.

By keeping yourself informed about these developments, you’ll be better equipped to manage risks and maintain your institution’s reputation as a safe and reliable financial partner for your members. Let’s dive in.

Credit Union Regulatory Hot Topics: Severance Agreement Changes

Recently, the National Labor Relations Board (NLRB) reversed a decision from 2020 that had restricted the language in severance agreements that “prohibits ex-employees from saying disparaging things about the old boss.”

Essentially, the law was put back to its previous iterations because the law was believed to be too restrictive. This protects employees from being required to sign severance agreements that include these prohibitions.

According to the NLRB, “It’s long been understood…that employers cannot ask individual employees to choose between receiving benefits and exercising their rights.” Several banking regulatory agencies are looking into similar policies in recent months as financial wellness declines in many areas of the U.S. due to rising costs and interest rates.

This underscores the importance of updating employee and employer policies and agreements to ensure they stay compliant with changing laws and regulations.

Assessing Loan Delinquency in Mergers

There has been some talk recently about how the valuation and evaluation of delinquent loans and potentially delinquent loans are handled during mergers and acquisitions under the current expected credit losses (CECL) methodology.

Currently, a credit union that is acquired and seems to be performing well, or at least at sustainable levels, will need to include a prediction for how many of the loans being acquired may end up delinquent after the transition. This is based on a concept called Purchased Credit Delinquencies (PCD)

Conversely, acquiring a poorly performing lending program and credit union currently means that no further predictions or analyses must be made – the delinquencies are assumed to have already been in effect at the time of the merger. This has the potential to undervalue CUs performing well and overvalue CUs that are performing badly, according to several critics in the financial industry.

NCUA 2023 Supervisory Priorities: Interest Rate and Liquidity Risk

In January, the National Credit Union Administration (NCUA) shared a list of supervisory priorities for 2023.

Two of the top items are interest rate risk and liquidity risk. Since interest rates rose quickly throughout 2022, this increased interest rate risk (IRR) as well as the exposure to earnings and capital in related scenarios.

NCUA has urged credit unions to be proactive in managing IRR and will be reviewing credit union IRR programs for risk management and control activities to ensure:

  • Key assumptions and related data sets are reasonable and well-documented.
  • The credit union’s overall level of IRR exposure is properly measured and controlled.
  • Results are communicated to decision-makers and the board of directors.
  • Proactive action is taken to remain within safe and sound policy limits.

You can see the examiner’s guide for interest rate risk here.

Liquidity risk is also addressed in the examiner’s guide. Since higher interest rates reduce cashflows for many institutions, NCUA is telling credit union leaders to focus on and do a thorough audit of their CU’s liquidity risk management framework and to update and amend it as needed for the current markets.

NCUA 2023 Supervisory Priorities: Fraud Prevention and Detection

Fraud and cybersecurity threats continue to increase in volume year after year. And the NCUA has included some new items because of these elevated risks.

The first includes the implementation of a management questionnaire “designed to enhance identification of fraud red flags, material supervisory concerns, or other potential new risks.” The goal of this questionnaire is to help protect credit unions and prevent potential losses. To reduce instances of duplication, federal and state examiners will be coordinating to ensure all the bases get covered, but time and resources are not wasted.

Overdraft and NSF Fee Regulations

Regulatory agencies are scrutinizing the use and applications of overdraft and NSF fees as well. They are looking to establish whether credit unions’ usage is considered unfair under the Unfair Deceptive and Abusive Acts & Practices.

This doesn’t necessarily mean your credit union should abandon them, but it does warrant an assessment of your current fee structures and applications to ensure they don’t have the potential to be labeled as unfair.

Keep an Eye on Compliance

Keeping your members safe and thriving is a top priority for your credit union. And keeping your operations and data protocols compliant with current regulations, or exceeding them, is a main component.

And as credit unions continue their digital transformation journeys, it’s crucial to have top-level software in place to help with that.

IMS uses Polaris Sonar to help credit unions maintain compliance:

  • You can automate with machine learning and policies
  • Identify sensitive data exposure
  •  Accelerate compliance with privacy laws
  • And more

Reach out to us today with questions or let us walk you through our services and their features, all made specifically with your credit union in mind!

Silicon Valley Bank Collapse: 4 Takeaways

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Silicon Valley Bank is one of the most prominent financial institutions in the tech industry, providing banking services to startups and venture capitalists. Recently, the bank experienced a security incident that affected its clients’ sensitive information. This incident has raised concerns among Silicon Valley Bank’s customers and other businesses alike.

We will examine the key takeaways from the Silicon Valley Bank collapse and provide insights on how businesses can better protect their data. Whether you are a startup, investor, or any other stakeholder in the tech industry, it is crucial to understand what happened at Silicon Valley Bank and how to prevent similar incidents from occurring in your organization.

Let’s dive into what we know about this event so we can learn from it.

Silicon Valley Bank Incident Is Not an Indicator of Widespread Financial Collapse

Whether you are serving credit union members in the California markets, have clients who finance tech startups, or don’t have anything in common with SVB, your members may still be concerned.

So, we first want to look at the core issue behind the Silicon Valley Bank incident. By many accounts like this one from the Kenan Institute of Private Enterprise, SVB suffered from mismanagement of its balance sheet.

The Silicon Valley Bank assets were long-term in nature but their liabilities were mostly short-term in the form of demand deposits, which isn’t wholly unusual for financial institutions. But the nature of their business – having served mostly tech startups – meant that their assets were more sensitive to interest rate changes. And we saw some record-breaking interest rate changes in 2022.

SVB was operating with a larger-than-normal amount if uninsured deposits and, when hit with an unexpectedly high volume of withdrawals from these uninsured depositors in less than 24 hours, more than 90% of the bank’s total deposit base became a liability that was coming due immediately, so to speak.

There were several ways to mitigate these fluctuations, and in fact, most well-managed financial institutions (like yours) do just that. But because the nature of banking is often hard for your members to conceptualize – and personal finances alone are difficult to manage without proper education – you may have noticed your teams encountering more members with worries about the safety of their assets.

Because of that, we want to share some of the biggest takeaways banks and credit unions can glean from the SVB fallout.

Focus on Difference Messaging

The Credit Union Times recently shared an article about how CUs can re-educate members on some of the biggest differences between banks and credit unions.

Credit unions should share insights about how they accept deposits, and then nearly always turn around and reinvest those funds into local communities.

Leaning heavily into the non-profit nature of credit unions versus private banking services can help bridge the trust gap that has been created for banking members all over the United States. It’s important right now to instruct your front-facing staff members to take their time to reassure your members that their funds are safe.

Credit unions are, at their core, agents of growth and financial wellness for their members and the larger communities that they serve – sharing the regulatory and insurance-related protections your CU has in place will help members maintain peace of mind knowing their funds are safe, no matter what happens.

Warnings about Cryptocurrency from NCUA Were Warranted

Many professionals within the American banking system and industry had strong opinions about the NCUA and its recommendations for a cautious approach when it comes to cryptocurrency.

As a new form of trending currency as well as financial and investment opportunities, SVB worked closely among startups and crypto enthusiasts. While this in and of itself isn’t inherently incorrect, it’s also a big leap to endorse new assets and banking trends, especially since economic stability since the onset of the COVID-19 pandemic has been harder to predict.

Single-Sector Business Isn’t Dooming Any FIs

Yes, part of the problem with SVB was the lack of diverse business – it was a bank that catered to a specific market and industry. But you may be thinking, “Aren’t there many instances of banks and credit unions keeping their business concentrated on a specific industry or region?” and yes, there are.

So it’s important to note that SVB was concentrated in such a way that it only did business in highly volatile markets. It catered mostly to venture capital-backed startups in tech and healthcare, and only in the Northern region of California.

Similarly, the behavior of SVB’s clients differs from the average banking member base in America. SVB’s deposits often far outweighed the demand for loans, and that was coupled with the bank’s tendency to invest in securities with long-dated maturities. Then, when interest rates rose, these long-term bonds lost much of their value.

Essentially, their narrow focus, coupled with economic factors and underestimation of their need for liquid assets is what created a perfect firestorm for Silicon Valley Bank.

So how do you communicate this into a solid strategy for helping your credit union members? Remember that regulations and compliance with governing bodies is the bare minimum. You can always put extra precautions in place, especially in this post-COVID landscape.

Diversification in the industries your CU serves isn’t a cure-all for preventing bank failure. It is most certainly something to keep an eye on, but with strong financial management practices in place, you can communicate to your members that their funds are not in danger of disappearing with a simple economic shift or downturn.

Reliability and Trust are Indispensable

Bank and credit union members are looking for safety in the wake of SVB and other financial uncertainties. And if they can’t trust your financial institution to help them weather a crisis because you are the one creating that crisis for them, you may never be able to recover that trust once it’s lost.

Credit unions already have a leg up on big banks when it comes to providing a satisfying member experience. And your member experience should always be coupled with top-tier backend programs and protocols.

That’s why IMS offers IaaS (Infrastructure-as-a-Service) to help you reduce expenses by eliminating the cost and headache that comes with setting up and managing your own on-site data center.

Our IaaS offering is enterprise-grade and cloud-based, built to meet the needs of your organization as it grows and changes.

The Cost of Bad Data

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Good data is essential for businesses, especially credit unions. But what many credit unions need to realize is that bad data can come with a hefty price tag. From decreased operational efficiency to missed opportunities to grow your business, the cost of bad data is real and often underestimated.

To help you understand these costs and how they can affect your credit union, we’ll examine the cost of bad data quality, how to identify it, and how you can prevent it from happening in the first place.

Data Quality: Why Bad Data is So Bad

We’ve featured bad data insights previously on the IMS blog in a past article about the ways bad data can harm your credit union. But the world is increasingly data-driven, and businesses are more reliant on intelligent data analytics, backups, recovery, and targeted solutions than ever before. And the amount of data being processed by financial institutions continues to grow in volume every year.

Improving data quality is a concern for businesses across all industries, and businesses in the financial sector are often under higher scrutiny than others. Because of this, keeping accurate data banks is so important for compliance items and for the reputation of your brand.

Bad Data Main Causes

You can’t escape bad data, you can only minimize it. And that means recognizing the causes of poor-quality data.

One of the most common causes is incorrect and incomplete data from members and/or employees. Miss one number in a member’s address on their loan application – that’s bad data. And that bad data can live on in a system for years if it’s not caught and corrected. Everyone knows the prevalence of the typo – in fact, if your surname isn’t one of the common ones in the USA like Smith, Johnson, or Williams, we can all but guarantee you’ve gotten one medical bill, marketing email, or other official correspondence with your name spelled wrong. Even when people are copying data or collecting information slowly and deliberately, missed keystrokes happen.

This is also true with incomplete data. There’s a reason why almost every form you fill out online has the little “*” next to items that are required, and every missed box triggers a “you missed something” notification that prevents you from even moving forward with the form submission. These are commonplace now because it’s a great and proactive way to make sure the bad data doesn’t come from someone submitting an incomplete document or request.

Bad data is also easily propagated through poorly maintained vendor and third-party files. This data is vital in helping your credit union learn more about financial trends across organizations and understand more about the current markets and business climate. But it also comes with the added knowledge that everyone stores and manages their data a bit differently.

This point leads us to another big cause of bad data – lack of standardization. Because handling and managing such massive amounts of electronic data is fairly new, especially for credit unions, there’s a lot of room for error in execution. And when your data is keeping track of people, it’s easy to create duplicate entries for the same person.

Think about it – even just one woman can be in your system several times – once with her maiden name, once with her maiden name and middle initial, once with her married name, and on and on it goes.

This Credit Union Times article goes into more detail about some of the most common causes of bad data.

The Cost of Bad Data for Your CU

Bad data management is a lot like learning how to drive a car, but never getting inside one. You can understand the value and benefits that knowing how to drive can give you, but you can’t reap any of those benefits, and if you don’t interact regularly with the car, you can’t improve your driving skills.

The same is true with data – if it’s not accessible, it’s not useful. Having all the data and not using it (or not investing in high data quality measures) is the same as not having it, in many cases.

When it comes to the monetary value of bad data costs, the figures are in the trillions, and that’s just for certain singular business ventures. Recently, IBM reported a loss of $3 billion due to bad data, and Gartner reports that poor data quality costs organizations $12.9 million on average.

And because bad data means a loss of trust in your credit union, the monetary losses are compounded by the decline in member numbers. And because banking services are necessary for nearly all facets of work and life, those members then turn to big banks and fintechs to house and store their financial and personal data. And younger generations aren’t messing around with their brand loyalty – they are more than willing to leave banks that break their trust.

Discover, Classify, Report: Positive Data Management

Bad data come in all shapes and sizes. Without a quality data management strategy, your credit union could fall

down a rabbit hole of data corruption, misplacement, and ultimately, member dissatisfaction.

To help combat bad data practices, IMS has an amazing SaaS application that uses machine learning to discover, classify, and report on sensitive data without impacting your day-to-day. We do this through our Polaris Sonar compliance technology.

With Polaris Sonar, you can use machine learning to automate processes and policies, identify exposures of sensitive data, and stay in compliance with all applicable privacy laws while mitigating the cost of bad data.

Reach out to us today to learn more about this and other IMS tools that are expertly tailored to promote higher data quality in your credit union.

 

How Credit Union Data Analytics Can Improve Financial Performance

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In the modern age, credit unions are increasingly turning to data analytics to gain a better understanding of their financial performance. By leveraging data analytics, credit unions can track customer preferences, improve the member experience and ultimately increase their profits.

With the right strategies in place, credit unions can use data analytics to gain insights into their customers’ behaviors and preferences, as well as uncover new ways of boosting their financial performance. Let’s explore how credit union data analytics can help improve financial performance and provide customer satisfaction.

Benefits of Credit Union Data Analytics

Financial institutions like credit unions are often behind the times when it comes to technology. And this new emphasis and dependency on data analytics is a chance for credit unions to upgrade some of their current solutions to capitalize on the immense benefits of top-tier credit union data analytics.

But what are the biggest benefits of data analytics? Here are a few:

  • See the big picture of your credit union’s financial performance
  • Increase agility
  • Improve decision-making

Data-driven profitability is created by gaining visibility into your credit union data and adjusting your transformation plans to suit that data’s story.

Agility is a core component of thriving businesses in the post-pandemic financial climate. As the marketplace changes with things like cryptocurrency, stock market fluctuations, emerging fintech, and more, your credit union can expand its reach and the viability of your solutions for current and future members by keeping your business model agile and flexible to change.

Decision-making is part of a credit union leader’s core responsibilities, but how do you know what the right decisions are when there’s so much diversification and specialization happening in the financial industry right now? Automation and data analytics are two of the most powerful tools you have at your disposal.

By drilling into your credit union’s available data, you can often make more accurate plans, gain a better understanding of your position in the current market, and streamline processes to cut costs and improve margins.

Using Data Analytics to Mitigate Risk

While we are sure your credit union has several fraud detection policies and protocols, it’s also important to use data analytics for fraud prevention.

When you are familiar with the flow of data and the types of data you are sending and receiving on a regular basis, you will notice when things look slightly left of center. You can also see trends in data flow on a monthly, quarterly, and yearly basis. This helps you identify fluctuations in the marketplace and help your credit union prepare its staff and members for possible changes, like interest rate hikes, inflation spikes, related market trends (like housing crises, rising debt, etc.), and more.

You can also use analytics to help manage your member-related risks. Investment risk modeling and credit risk analysis can help you determine which members are struggling, which can easily afford loans with the latest interest rates, and other trends in member behavior and market fluctuation.

Using Analytics to Manage Supply and Demand

Supply and demand are two sides of the same coin, and you need a good understanding of both to succeed in any business venture. And you can use data analytics to help ensure things stay as balanced as possible for your credit union.

You can’t help your members and your community without great sales performance. Data analytics can help you decipher branch and online channel sales in ways that will benefit your operations and help you bolster the programs that need work and highlight the success of those that are already working well.

Just like you can measure performance over time, data analytics enable you to track and measure the results of different lending, credit, and debit initiatives over time.

You can also use insights from data analytics to inform your approach to chatbots and other AI solutions.

When measuring and capitalizing on member demand, personalized marketing is a fantastic way to create momentum with data analytics. By putting your data to work for you, your marketing efforts are more informed and targeted, which means you pay less to get more. You can expand your reach and increase your success with regional campaigns, limited-time offers, and more.

Analytics also show the big picture of your member life cycle – you can use it to predict the lifetime value of your members, based on the types of credit union products and services they use during different parts of their financial life.

Analytics is a vast recommendation engine. If you know how to aggregate and sort your data, you can learn so much about your operational efficiency, market value, member experience, and so much more.

Credit Union Data Analytics: The Big Picture

In a recent study titled “CFO Outlook for Financial Institutions,” Syntellis found that when surveying finance professionals at banks, credit unions, and financial services companies in the U.S., 62% of respondents identified “pulling data from multiple sources into a single report” as one of the three most challenging reporting tasks.

There are so many ways you can use your credit union data analytics practices to create a detailed and helpful “big picture.” Data-driven digital transformation can create positive change by improving member intelligence, creating more efficient and productive processes, highlighting new business opportunities, and optimizing compliance and market factors to create a seamless experience for your staff and members.

But you need credit union data analytics and discovery to do all those things. Your raw, unfiltered data isn’t helpful if you can’t use it to glean new insights and inform your future operations approaches.

With IMS’s data discovery tool, DataArchiver, you can take advantage of on-premise, cloud, and hybrid storage while also taking advantage of powerful features including restore and recover, data compression and de-duplication, multi-remote site management, data life cycle management, and more.