FDIC Warns Banks to Tighten Monitoring of Payment
Processing Clients
Feb. 6, 2012
Last week, the FDIC released revised guidance for their
member financial institutions advising heightened monitoring and due diligence
when dealing with payment processor clients, especially those that process
transactions for merchants in the CNP space. The agency said it has seen an
increase in the number of relationships between financial institutions and
payment processors in which the payment processor, who is a deposit customer of
the financial institution, uses its relationship to process payments for
third-party merchant clients. According to the FDIC, most such relationships
result in transaction that are legitimate, but “payment processors that deal
with telemarketing and online merchants may have a higher risk profile because
such entities have tended to display a higher incidence of consumer fraud or
potentially illegal activities than some other businesses.” In other words,
processors that do business with e-commerce or telephone merchants are going to
face an increased level of scrutiny from their banks. “Financial institutions
that fail to adequately manage these relationships may be viewed as facilitating
a payment processor's or merchant client's fraudulent or unlawful activity and,
thus, may be liable for such acts or practices,” the agency said in its Financial
Institution Letter. To limit potential risks, the letter continued, financial
institutions should implement risk mitigation policies and procedures that
include oversight and controls appropriate for the risk and transaction types
of the payment processing activities.