CORPORATION for AMERICAN BANKING

Transcription

1 CORPORATION for AMERICAN BANKING Due Diligence Report New Account Opening Procedures Introduction The Corporation for American Banking (CAB), a subsidiary of the American Bankers Association (ABA), targets programs for endorsement that help banks diversify their income stream, reduce expenses, operate more efficiently, and compete more effectively. In response to the know your customer requirements imposed by Section 326 of the U.S.A. PATRIOT Act of 2001 (Patriot Act) enacted by Congress in 2001, the ABA s Government Relations and Compliance Departments deployed CAB to evaluate solutions that assist with Section 326 compliance. CAB conducted research in the marketplace to identify potential companies that were best positioned to help banks comply with the new Patriot Act requirements. CAB considered many factors during its due diligence process including product effectiveness, customer service standards, financial soundness, and marketing capabilities. In addition, CAB employed Alex Sheshunoff Management Services (ASM) to provide an independent review and analysis of such companies and service offerings.

2 At the conclusion of its due diligence, CAB recommended that the ABA further evaluate a LexisNexis product called InstantID. After the CAB analysis and the independent analysis by ASM, the American Bankers Association worked with LexisNexis to ensure that InstantID directly responded to the member banks request for assistance in fulfilling their obligations under Section 326 of the Patriot Act. ABA member banks also tested the InstantID product, provided feedback to the development committee and assisted in the overall product development and rollout. The following information represents the due diligence design and evaluation criteria along with key findings about the product ultimately endorsed by the ABA, InstantID from LexisNexis. Due Diligence Evaluation Criteria Some of the critical criteria used in evaluating potential companies and their services included: How well does the product offering meet the requirements of Section 326? Does the product offering have value added components-functionality? What types of data, quantity of data, and quality of data is used in the verification process? How will the product assist banks with their Customer Information Program (CIP)? Is the product price competitive and value competitive with other marketplace tools? What background does the providing company have that suggests strength, stability, and expertise? I. How well does the product offering meet the requirements of Section 326? The primary requirements under Section 326 of the Patriot Act are to know your customer by verifying the identity of your customer and to check the applicant information against government supplied lists of known terrorists and individuals involved in money laundering activities. InstantID uses a sophisticated and comprehensive search process developed by LexisNexis to verify customer identity information, check against government lists of known or suspected terrorists and identify circumstances often associated with higher risk. InstantID is designed to work with a variety of account opening processes and is available via on-line, Web-based searches, batch processing, or through systems integration in existing processing platforms. Applicant information such as name, address, telephone number, social security number and date of birth is provided via search forms available through a secure web link or as part of a list of applicants submitted for a batch process. 2

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4 The sophisticated LexisNexis search process takes each piece of input information and performs simultaneous searches against multiple-independent data sources. Extensive searches using Name-Address-SSN information and Name-Address-Phone information are used to validate and verify the account information. The verification process utilizes proprietary search and string comparison technology to quickly and efficiently sort through billions of records looking for confirmation of identity while checking for suspicious patterns of verification failure that may indicate fraud or data integrity problems. This search process incorporates built-in processing logic and sophisticated matching techniques to compensate for potential data input errors, changes of address, and name changes. Effective matching techniques ensure that data is accurately retrieved and compared to form an accurate conclusion of whether or not the data is verified. The InstantID process utilizes some of the most sophisticated matching and linking technology available today. The thoroughness of the InstantID verification and validation process produces very high verification rates. As a result, banks will have fewer exception accounts to process and customer acquisition interruptions will be minimized. InstantID Online Web Based Searches This feature allows banks to access data forms via a secure website and receive instantaneous feedback. Account openers access and complete the required customer information for a consumer or business verification which includes name, address, telephone number, social security number and date of birth. InstantID processes the information and immediately returns search results with a 4

5 verification index. This option gives bankers the ability to enter customer information during the account opening process in order to receive immediate results. InstantID Batch Processing Options When institutions choose to utilize the batch processing capability of InstantID there are two options available. The versions of InstantID through batch processing include: I. Compliance Version (InstantID) OFAC Check The CVI (Comprehensive Verification Index) Name - Address - SSN Results Name - Address - Telephone Results II. Compliance Version with Due Diligence Data (InstantID Premium) InstantID Premium includes all the InstantID content and; Corrected data for miskeyed information Telephone summary results Name & address summary results SSN - name - address summary results OFAC hit information InstantID Business Processes InstantID is also available to assess new accounts opened on behalf of a business entity. The business processes can assess data for the business entity alone, or can simultaneously assess both the business information and the business authorized agent information. The later solution is particularly effective when opening a small business account which often includes both business and consumer information. The fundamental search processes within the InstantID business products are the same as the InstantID consumer processes. However, in addition to searching billions of consumer records, extensive searching also takes place across multiple-independent business data files consisting of over 75 million records. The InstantID business process includes verification results for the business entity and for the business authorized agent information if it has been provided. Potential risk indicators are provided for both the business data and the agent data. Corrected information is provided if the InstantID process determines that some of the input data may have been miskeyed. Supplemental information about the business such as years in business, number of employees, principal officers, and other public record information can also be provided as part of the business InstantID process. 5

6 II. Does the product offering have value added components-functionality? InstantID not only helps banks meet the compliance requirements under Section 326, it also provides several value added components. InstantID is also a valuable fraud prevention tool. The Comprehensive Verification Index (CVI) and Business Verification Index (BVI) within InstantID is valuable for assessing the level of identity verification achieved, and it s also indicative of potential fraud risk and identity theft. A potential risk indicator such as deceased SSN, invalid SSN, and others are also frequently correlative to fraud and identity theft and are useful tools for subsequent actions taken by the bank. Lastly, the data located in the search processes, is also useful for follow-up, due diligence, and fraud prevention efforts taken by the bank. III. What types of data, quantity of data and quality of data is used in the verification process? Bankers rate quantity and quality of verification rates produced by the product as extremely important factors in rating the functionality of a verification product. Compliance officers know that they will need to demonstrate that they have deployed an effective process within their organization. Research indicates that bankers value a process that meets Section 326 guidelines and minimizes false alarms that can create additional work in the bank s operations organization. Banks are looking for product offerings that can achieve high levels of verification yet can demonstrate sound principles that produce quality verifications. The verification rates with InstantID are extremely high. One reason is because InstantID accesses multiple-independent data sources in its verification routines. Nearly four billion consumer records are accessed for consumer verifications and an additional 75 million records are accessed for business account verification. The accumulative size of databases utilized by InstantID provides banks with one of the largest search engines available to any verification product. The data update frequency within InstantID makes the InstantID data some of the most current information available in any industry product. Current data is important for producing quality answers, especially in situations where a customer has recently moved. In addition to adding built-in intelligence for new mover situations, the InstantID product also takes into consideration potential data input errors when it s formulating its verification results. This data correction capability is important for minimizing false alarms, and it is also a valuable tool to ensure that subsequent customer contact can be made via telephone and mail. Category by category, InstantID compares favorably with other product solutions for quantity and quality, current data, data matching and linking technology, processing intelligence, and minimizing false alarms (false positives). 6

7 IV. How will the product assist banks with their Customer Information Program (CIP)? Financial institutions will be required to maintain a customer information policy for new account opening procedures. InstantID provides the tools necessary for banks to develop a customer information policy. InstantID is extremely comprehensive and enables financial institutions to build policy and take appropriate follow-up steps where necessary. Generally, the Comprehensive Verification Index (CVI) and Business Verification Index (BVI) within InstantID is used to determine which accounts may warrant further follow-up action. The potential risk indicators, potential follow-up actions, and the due diligence data provided within InstantID make it easy for banks to deploy appropriate follow-up actions on accounts which have poor verification or indications of potential risk. Many banks use the summarized search results in the easy-to-use CVI and BVI as the foundation of their Customer Identification Program (CIP). The CVI and BVI are categorized as a value of 00, 10, 20, 30, 40, or 50. A CVI or BVI score of 00 indicates that none of the data was verified; a score of 50 means that complete verification of the applicant information has been achieved. When an account has a low CVI or BVI value, it is suggested that the bank follow its internal policy regarding account opening procedures. In addition to OFAC screening and the CVI or BVI, InstantID also includes potential risk indicator flags (i.e. SSN belongs to a deceased individual) and data located from the search processes which makes subsequent due diligence efforts easy to deploy within the financial institution. V. Is the product price competitive and value competitive with other marketplace tools? The price range for Section 326 compliance products ranges significantly and is influenced by several factors. Prices include various combinations of transaction fees, fixed fees, licensing fees, start-up fees, integration fees, and consulting fees. InstantID s price range varies depending on which version, html or batch, the bank implements, as well as other ancillary products purchased. LexisNexis conducted market research, including feedback from community bankers, regarding pricing, product offerings and scope of services offered to determine pricing appropriate for the marketplace. VI. What background does the providing company have that suggests strength, stability and expertise? InstantID is a product produced by LexisNexis. This group has the ability to access one of the largest collections of public records available anywhere and has 30 years of data 7

8 management expertise. Unlike several other companies who have recently emerged with verification products, LexisNexis has been focused on identity verification processes since 1994 and has a well established market reputation as a leading authority on identity verification and authentication. In 1993, Elsevier NV and Reed International P.L.C. merged to form Reed Elsevier plc. Its first major acquisition was LEXIS-NEXIS in In 2002, Reed Elsevier plc was renamed Reed Elsevier Group plc. The LexisNexis Group unites strong brands, pioneering technologies and premium information for customers in the legal, corporate, government and academic markets. More than two-thirds of its revenue is generated in the North American marketplace. The Group is also the market leader in the United Kingdom and the British Commonwealth and major publisher in the legal, tax and regulatory markets in Continental Europe and Latin America. The Group is divided into four main operating units: North American Legal markets, U.S. Corporate and Federal markets, Martindale-Hubbell and the International Division. The division, which comprises the Group s publishing assets, is regionally organized, in Europe, Asia-pacific and Latin America. The Group's products are available via the World Wide Web, dial-up online, CD-ROM and hardcopy print. The thousands of titles available via LexisNexis Group products offer access to some of the most recognized and authoritative sources in the world today. LexisNexis Web and dial-up online solutions combine searchable access to billions of documents from thousands of sources with leading edge systems and tools for managing this content. LexisNexis delivers a high quality resource with which to build research and knowledge-management solutions for the entire enterprise. Providing access to thousands of worldwide newspapers, magazines, trade journals, industry newsletters, tax and accounting information, financial data, public records, legislative records, data on companies and their executives makes the LexisNexis service an indispensable tool for gathering information and providing accurate answers. As an aggregator of public records databases, LexisNexis was recently named one of KM World magazine's "Top 100 Companies in Knowledge Management." LexisNexis* at lexis.com and lexisonesm are winners of the 2002 Codie Awards sponsored by the Software and Information Industry Association (SIIA), which also awarded LexisNexis its prestigious Corporate Achievement Award. The Codie s recognize the software and information industry's finest products and services and honor excellence for corporate achievement and philanthropic efforts. LexisNexis LexisNexis combines one of the largest collections of public records available anywhere with innovative search processes and statistical modeling to provide industry leading identity authentication products. Formed after the acquisition of International, L.L.C. in 2000, this unit builds products and services for fraud detection, risk scoring, identity verification and fraud consulting and management services. The LexisNexis family of 8

9 solutions provides innovative and intelligent tools for financial institutions to acquire good customers, manage risk and locate and recover assets. Customer Service/Support LexisNexis has a highly trained customer support organization. Customers within the United States can simply call , 24 hours a day, 7 days a week with questions. Customer Support Representatives address questions related to InstantID as well as the news, finance, public records, and business materials. Training LexisNexis offers a wide array of training options to assist customers in learning about products as well as how to use them in order to maximize their effectiveness. As part of the implementation process, the LexisNexis Project Manager works with each customer to determine the exact type of training the customer will need to effectively use InstantID. The training options naturally vary for each institution but can include training classes that train the trainer, individual training or training groups either in person or telephonically. The customer will work with both the Account Manager and a Project Manager to come up with a training course and schedule that best meets the institution s needs. The Account Manager and Project Manager will continuously stay in contact with the customer on an ongoing basis to ensure any training issues are appropriately addressed. Technology LexisNexis data management and technology leadership has spanned more than 30 years. The LexisNexis Data Center is one of the largest of its kind in the United States. The complex operates 365 days a year, 24 hours a day. It consists of networked servers, software and telecommunications equipment that are the backbone for a wide range of LexisNexis products and services, as well as the host to customer data and other Reed Elsevier services, such as Elsevier Science Direct. Allan McLaughlin, senior vice president and CTO of LexisNexis, was named among the Top 25 Most Influential CTOs of 2002 by InfoWorld, a highly regarded resource for indepth technical analysis on key products, solutions, and technologies for sound buying decisions and business gain. The magazine chose McLaughlin for his innovative efforts and continued success in a challenging economic landscape. McLaughlin is an acknowledged technology leader and maintains responsibility for all the information systems and information technology operational functions of LexisNexis. It is his team that enables the company to deliver its top-quality, high availability online services of integrated legal, news and business information to customers worldwide. McLaughlin s team uses a mixture of homegrown and state of the art technology and processes to ensure a proactive, customer focused business service for the business. LexisNexis has also achieved TruSecure Corporation s Perimeter Security Certification by successfully completing extensive information security assurance compliance 9

10 validation for the LexisNexis Data Center, housing more than four billion documents comprising the LexisNexis information services aspTruSecure certification, a gold standard for essential best practices in network and information security, confirms that LexisNexis is effectively managing information security risk, ensuring that LexisNexis information services continue to provide high levels of integrity, confidentiality and availability to customers throughout the world. The TruSecure Perimeter service is an integrated security program addressing the most significant sources of external risk. It provides security assurance in six major areas: electronic threats and vulnerabilities; malicious code; privacy; physical security; system availability; and human factors. Implementation The LexisNexis family of products provides online, batch processing and machine-tomachine customer solutions. To ensure implementation goes smoothly and produces quality results after a contract is signed, project managers assist with initial process setup. In addition, the batch process has been designed to accommodate the many different types of internal systems used by financial institutions. LexisNexis can accept virtually any type of file format and return results in virtually any type of file format. Implementation of the online version of InstantID is also straightforward. Access to the online version is available at and requires a user identification number and password, which is assigned by LexisNexis. Whether you need access for one person or for an entire team, simply log on to the website. As outlined above, multiple methods of training are available to ensure the InstantID solution is well implemented. Conclusion InstantID is a unique product offering that helps financial institutions meet the requirements set forth in Section 326 of the Patriot Act. Additionally, InstantID provides several valuable components that can be used by financial institutions in their fraud-loss mitigation efforts and within their follow-up due diligence on new accounts. Regulatory compliance is often perceived as additional operational burden and cost. However, unique features of InstantID can convert what may have been perceived as an incremental cost into bottom line improvement for the financial institution. With InstantID, banks get several unique features including: Tools for 326 compliance in a single product. Assistance in meeting compliance requirements for both consumer and business entities. A unique 0-50 Comprehensive Verification Index (CVI) that makes Section 326 policy deployment easy and understandable. 10

11 Built-in logic that considers changes of address, data input errors, and name changes to reduce false alarms and improve verification accuracy. Information which can streamline operational procedures and follow-up due diligence. Information which can help prevent financial fraud and identity theft and produce bottom line results. More information about InstantID, the ABA-sponsored Account Verification and Validation solution is available by visting or by contacting: American Bankers Association LexisNexis Lisa Gold Schier Scott Kolar Director, Strategic Alliances Senior Director of Marketing Corporation for American Banking LexisNexis 1120 Connecticut Avenue, NW PH: (630) Washington, DC PH: (202) Website: The information gained from InstantID is not to be considered a consumer report (as that term is defined in the Fair Credit Reporting Act 15 U.S.C. Sec 1681, et seq.) and may not be used to determine a consumer s eligibility for credit or insurance for personal, family, or household purposes; employment; a government license, or benefit, or other transaction initiated by a consumer. LexisNexis and the Knowledge Burst logo are trademarks of Reed Elsevier Properties Inc., used under license. It s How You Know is a trademark of Reed Elsevier Inc. RiskWise and InstantID are registered trademarks of RiskWise, L.L.C. Other products or services may be trademarks or registered trademarks of their respective companies. 11