Question

A recent Federal Financial Institutions Examination Council (FFIEC) news release provided financial institutions with some additional guidance focusing on the risks and risk management controls necessary to authenticate the identity of customers accessing electronic financial services. Effective authentication processes provide financial institutions with additional controls over the risks involved in which of the following activities?

1. Increasing transaction fees
2. Reducing potential for bank fraud
3. Enforcing electronic transactions and agreements
4. Tracking account activity

a. 1 & 2
b. 2 & 4
c. 1 & 3
d. 2 & 3

Answer 1

Effective authentication enhances risk control for electronic financial services, adheres to anti-discrimination laws as mandated by the Fed, and protects against identity theft arising from data breaches.

Step-by-step explanation:

Effective authentication processes offer financial institutions better control over the risks associated with delivering electronic financial services. Such processes enhance consumer protection and ensure compliance with regulations that prohibit discrimination based on age, race, sex, or marital status, which the Federal Reserve (Fed) mandates. Equally, these processes are crucial in safeguarding the public trust in financial systems that has been eroded due to recent data breaches, resulting in an increase in identity theft threats.

Additionally, the Federal Financial Institutions Examination Council (FFIEC) highlights the importance of customer authentication in the context of risk management. This is vital for various aspects of banking services, including the transparency of how loans for house buying are geographically distributed, along with the sex and race of loan applicants. The FFIEC's guidelines stress the need for effective risk management to protect consumers and ensure the integrity of electronic financial transactions.