Bank Internet Use Creates Growth in Federal Regulations 

T he Federal Deposit Insurance Corporation (FDIC) is educating their members on the new perils associated with a bank or thrift’s use of Web technology, as we enter the twenty-first century. Including a bank or thrift’s Web page as an element of an annual audit is just the beginning of the expected changes by the FDIC. In early 1997 only 130 banks and thrifts in the U.S. had a Web page, and only one was connected for commerce. So, it’s understandable that the FDIC was surprised when the 2000 interim report found that 4,000 banks currently have a Web page and 250 of them are connected for commerce. These findings mean that 40% of all banks have “gone online” in just three years, with 12% being commerce-enabled.

Interestingly, the FDIC is more concerned about those banks that have a simple brochure site than those that have full-scale commerce capabilities. Using bank surveys, the FDIC has noted that generally brochure sites tend to be built and left alone for significant periods, outsourced for construction and maintenance, and often hosted by outsourced providers. This means that these sites may not be reviewed often by the financial institution and consequently are subject to being “spoofed” by criminals, without a bank representative noticing in any reasonable timeframe. This may be enough time for a criminal to create online loan and deposit information that is transmitted to a location other than the bank.

The FDIC has new regulations regarding a bank’s use of Web technology. They want careful review of Web resources, and reviews and audits of Internet resource providers to financial institutions. This particular development could have a chilling effect on ISO system integrators and even the continued development of competition.

Finally, the government remains concerned about consumer protection and minimizing consumer confusion in the Web space/land rush. One of their concerns relates to banks who use different names on the Web than those used in the brick and mortar world. Marlene M. Baer, FDIC IS Examination Specialist, pointed out that branding issues, such as WingspanBank.com and BankOne being one and the same, can be a problem for consumers. Given the fact that Federal Deposit Insurance does not exceed $100,000 per financial institution, a consumer could be mislead into believing that they had coverage from both Wingspan and BankOne, which, of course, is not true.

Keep an eye out for future articles on this subject. We will be working on stories about both the Office of the Controller of the Currency (OCC) approval of Internet-Only banks, as well as the actual audit guidelines for FDIC Internet provider audits and reviews, to keep watch on both the potential opportunities and problems for ISOs.

Overall, the development of audit and review requirements at the federal level, while understandable, is not really the “hands-off-the-Internet” environment that we might have expected.

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