Red Flags Rule: A How-To Guide for Financial Institutions

Financial institutions and other businesses that are required to comply with Federal Trade Commission (FTC) jurisdiction must implement a four-step red flag identification and prevention program to curb identity theft. While many banks, creditors, and financial institutions already have some sort of identity theft mitigation process in place, the four-step process is a great way to prevent these risks from occurring. As we explore how to implement this Red Flags Rule program, ensure your institution is protected with a customized Financial Institution Crime Insurance package.

Step #1: Identify relevant risks.

The Federal Trade Commission states that different types of accounts pose different kinds of risk. For example, red flags for deposit accounts may differ from red flags for credit accounts, and those for consumer accounts may differ from those for business accounts. When you are identifying key red flags, think about the types of accounts you offer or maintain, the ways you open covered accounts, how you provide access to those accounts, and what you know about identity theft in your business. When reviewing your customer’s personal information, be wary of credit reporting company alerts, inconsistencies in personal identifiable information, suspicious documents, and unusual account activity.

Step #2: Detecting red flags.

When creating new accounts, verify information across various government-issued documents and compare to credit reporting agencies. To detect red flags for existing accounts, your program may include reasonable procedures to confirm the identity of the person you’re dealing with, to monitor transactions, and to verify the validity of change-of-address requests, explains the FTC.

Step #3: Prevent identify theft.

If identity theft is detected, notify the customer immediately, ensure they change their passwords to all existing accounts, and reinstate a new account. Depending on the severity, law enforcement may need to be notified.

Step #4: Update rule.

Update the rules as necessary. Factor in new methods to detect, prevent, and mitigate identity theft; your own experience with identity theft; changes in how identity thieves operate; changes in your business, like mergers, acquisitions, alliances, joint ventures, and arrangements with service providers; and changes in the accounts you offer, explains the article.

About FGIB

Since 1983, Financial Guaranty Insurance Brokers has distinguished itself as a provider of Professional Liability, Cyber Liability, and Crime insurance products for financial entities, in addition to providing crime insurance and general business insurance products to a number of firms across the United States. To receive timely, personalized service from a knowledgeable and experienced staff, call us today at (877) 485-4413 to speak with one of our professionals.