Preventing fraud, cybercrime in midst of coronavirus crisis ‘top challenge’ for bank deposit insurer, report finds

Guarding against financial fraud and cybercrimes at banks, such as that affecting guaranteed loan programs is among the top challenges facing the federal insurer of bank deposits in light of the COVID-19 pandemic, the agency’s watchdog said in a report issued Wednesday.

The report issued by the Federal Deposit Insurance Corp.’s (FDIC) Office of Inspector General (OIG) also identified resolving financial institutions and the agency’s “readiness for crises” as top challenges.

Regarding fraud and cybercrime, the OIG report focuses on loan programs such as the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) as a target of fraud.

“Based on our prior experience, we have seen that the guaranteed-loan programs (such as the Paycheck Protection Program) may lead to an increased risk of financial fraud and criminal activity, because the fraudsters know that such loans are backed by the U.S. government,” the report states. “The FDIC may face challenges in ensuring the proper level of supervision and examination scrutiny for guaranteed loan portfolios at supervised institutions.”

The report also notes that as, during the coronavirus crisis, many persons are using online resources for financial transactions and work, there is an increased risk of phishing, email fraud and other cybercrimes.

“Banks’ use of third-party service providers to support technology systems may increase cybersecurity risk at institutions,” the report stated. “The FDIC must ensure that banks secure and protect multiple avenues of digital interconnections, because a cyber incident at one digital juncture has the potential to infect other institutions in the banking system.”

Other top challenges outlined are:

  • Resolving financial institutions in a method that ensures the health and safety of agency employees (with an adequate supply of personal protective equipment and training on its proper use during on-site resolutions and receiverships);
  • Executing the novel provisions (that is, never been used before) of the Orderly Liquidation provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to carry out the liquidation of systemically important financial institutions (SIFIs), should liquidations become necessary.
  • Ensuring the agency is ready for a “broad range of crises” that could affect the banking system. For example, the report notes, in April the OIG identified seven best practices that could be used by the FDIC in its crisis readiness framework: (1) Policy and Procedures, (2) Plans, (3) Training, (4) Exercises, (5) Lessons Learned, (6) Maintenance, and (7) Assessment and Reporting.

Top challenges facing federal agencies: COVID-19 Emergency Relief and Response Efforts (FDIC OIG report)