The world of regulatory technology is filled with complex terms and acronyms, making it easy to get lost in the details. Here, we\u2019ve defined the most common RegTech and compliance terms to help you understand the language that powers the industry.<\/p>\n<\/div>
Account takeover (ATO) fraud is a form of identity theft where fraudsters obtain a legitimate user\u2019s credentials and take over their online accounts and make unauthorized transactions and\/or changes.<\/p>\n<\/div><\/div><\/div>
The\u00a0Anti-Money Laundering International Database<\/b>, or\u00a0AMLID<\/b>, is a database containing an analysis of AML laws and regulations around the world. The database also contains the contact information for countries\u2019 anti-money laundering authorities. It was designed to be a reference tool for law enforcement officials, investigators, and other individuals working on money laundering cases involving multiple jurisdictions.<\/p>\n<\/div><\/div><\/div> Like the relationship between an area code and a phone number, every bank has an assigned routing number and every bank account has its own assigned account number. The combination of the two number sets creates a coding system that uniquely identifies every single bank account and allows monetary transactions to be easily directed to and from accounts.<\/p>\n The speed of electronic transactions not only allows for seamless commerce but also lightning-fast fraud.\u00a0Bank Account Validation Services<\/b>\u00a0(or AVS) is a fraud protection tool that offers financial institutions and other related entities the ability to verify information such as the status or ownership or beneficiaries of an account in near-real time. This can be used in cases including prior to the issuing of a payment or a disbursement in order to prevent payment fraud or other losses, such as payment delays.<\/p>\n The most common AVS methods are those involved with Automated Clearing House (ACH) transactions. Top industries using AVS include payroll companies and direct sales, especially those with large funds transfers or high fraud risk.<\/p>\n ACH micro-transactions<\/b>\u00a0might be sent by a person-to-person sales app, such as an\u00a0online marketplace<\/a>, to verify that the recipient is a legitimate person and that the account is active and correct. After the recipient confirms receiving the test deposits, typically a few cents each,\u00a0the originator will typically then debit the same transfer amounts.<\/p>\n ACH pre-notifications<\/b>, or pre-notes, are $0 transfers that verify account details. They are similar to micro-transactions except that the recipient does not need to confirm receiving them nor do they need to share personal or financial information to do so. The verification is considered complete if there are no errors or change notifications. Pre-notes are commonly used for direct deposits, such as payroll.<\/p>\n Validation via wire would involve sending a test wire and requesting manual confirmation. Validating via ACH would accomplish the same end result for less cost but is a slower overall process.<\/p>\n Bank Account Validation Services play a crucial role in minimizing fraud, internal errors, payment delays, and other costly business disruptions. By validating an account prior to a significant transaction, the chances of errors or missed payments are significantly reduced. This provides both the sender and recipient with peace of mind in knowing that the involved parties are legitimate and having a higher level of assurance that unexpected complications won’t arise.<\/p>\n<\/div><\/div><\/div> The Bank Secrecy Act (BSA) is a law that requires US financial institutions to collaborate with the US government in cases of suspected money laundering and fraud.<\/p>\n<\/div><\/div><\/div> A\u00a0business lien<\/b>, also called a\u00a0corporate lien<\/b>, is a legal claim against a company\u2019s assets \u2014 typically financial assets, real estate, vehicles, or other equipment \u2014 filed by an entity to which the company owes money. Liens show that the filing entity has an interest in these assets and that the assets can potentially be seized and sold to pay back the debt.<\/p>\n Liens are often filed by:<\/p>\n The California Consumer Privacy Act (CCPA) is the California equivalent of\u00a0GDPR<\/a>\u00a0and went into effect on January 1, 2020. It specifies that consumers have a right to request what information is being collected, for what purpose, and with whom it’s being shared. Consumers can also request to opt out of their data being shared or for their data to be deleted (which businesses must comply with unless that data impairs their ability to provide core services). Individuals also have the right to equal service and price, even if they exercise their privacy rights. Under CCPA, businesses are not allowed to sell the PII of anyone under 16 years of age, unless these individuals have specifically opted in.<\/p>\n A more comprehensive version of CCPA, the\u00a0Consumer Privacy Rights Act (CPRA)<\/a>, went into effect on January 1, 2023 and gives consumers control over whether companies can share their personal information as well as whether they can sell it.<\/p>\n<\/div><\/div><\/div> The Children’s Online Privacy Protection Act of 1998 (COPPA) is a US federal law created to protect the privacy of children under 13.<\/p>\n<\/div><\/div><\/div> Combating the Financing of Terrorism, or Counter Terrorist Financing (CFT) refers to a multitude of laws and regulations enacted to reign in the financing of terrorist activity. Under these policies, most financial institutions are required to fulfill strict requirements, including monitoring customers\u2019 transactions and behavior, conducting proper\u00a0due diligence, and maintaining appropriate records.<\/p>\n<\/div><\/div><\/div> Compliance as a Service (CaaS)<\/b>\u00a0is a business model in which one business hires another business to design, implement, consult on, and\/or manage their compliance needs. It often involves purchasing licenses for compliance-focused software and tools. The CaaS business model makes it possible for a business to become and remain compliant with the regulations affecting them without needing to build and oversee their own in-house compliance solutions.<\/p>\n<\/div><\/div><\/div> The Customer Due Diligence (CDD) Rule is a regulation issued by the\u00a0Financial Crimes Enforcement Network (FinCEN)\u00a0aimed at improving financial transparency and preventing financial crimes and money laundering.<\/p>\n According to\u00a0FinCEN, the CDD rule requires covered financial institutions to \u201cidentify and verify the identity the natural persons (known as beneficial owners) of legal entity customers who own, control, and profit from companies when those companies open accounts.\u201d Beneficial owners include any individual who owns 25 percent or more of a legal entity.<\/p>\n To do this, organizations must \u201cestablish and maintain written policies and procedures that are reasonably designed to (1) identify and verify the identity of customers; (2) identify and verify the identity of the beneficial owners of companies opening accounts; (3) understand the nature and purpose of customer relationships to develop customer risk profiles; and (4) conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.\u201d<\/p>\n<\/div><\/div><\/div> A\u00a0Customer Identification Program (CIP)\u00a0is a requirement of the USA Patriot Act that prescribes the minimum financial institutions must do to \u201cform a reasonable belief that it knows the true identity of each customer.\u201d<\/p>\n According to the Federal Deposit Insurance Corporation (FDIC), the CIP Rule has six general requirements:<\/p>\n A data breach is a security incident where unauthorized users take sensitive, protected, or confidential information from a system without permission from the system owner.<\/p>\n<\/div><\/div><\/div><\/i><\/i><\/span>Anti-money laundering (AML)<\/span><\/a><\/h4><\/div>
<\/i><\/i><\/span>Bank Account Validation Service<\/span><\/a><\/h4><\/div>
Who uses Bank Account Validation Services?<\/b><\/h2>\n
Why are Bank Account Validation Services important?<\/b><\/h2>\n
<\/i><\/i><\/span>Bank Secrecy Act (BSA)
\n<\/span><\/a><\/h4><\/div><\/i><\/i><\/span>Bot protection<\/span><\/a><\/h4><\/div>
<\/i><\/i><\/span>Business lien<\/span><\/a><\/h4><\/div>
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<\/i><\/i><\/span>California Consumer Privacy Act (CCPA)<\/span><\/a><\/h4><\/div>
<\/i><\/i><\/span>Children\u2019s Online Privacy Protection Act (COPPA)
\n<\/span><\/a><\/h4><\/div><\/i><\/i><\/span>Combating the Financing of Terrorism (CFT)<\/span><\/a><\/h4><\/div>
<\/i><\/i><\/span>Compliance as a Service (CaaS)<\/span><\/a><\/h4><\/div>
<\/i><\/i><\/span>Customer Due Diligence (CDD)<\/span><\/a><\/h4><\/div>
<\/i><\/i><\/span>Customer Identification Program (CIP)<\/span><\/a><\/h4><\/div>
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<\/i><\/i><\/span>Data breach<\/span><\/a><\/h4><\/div>