Category Archives: Risk & Compliance

Risk & Compliance AI Spotlight: FICO’s Machine Learning Facilitates AML

Brain with AML highlihgted in neural pathways
Jun222017

This is a guest post from Nikola Marcich with the Policy team at the Software & Information Industry Association (SIIA), the principal trade association for the software and digital content industry. Walking into Bernie Madoff’s home in 2005, you would not have found piles of money under a mattress, behind a sofa or in his garage. At the time, Madoff had been running an elaborate Ponzi scheme through the wealth management arm of his business that reached $65 million by the time of his arrest in 2008, deliberately hiding the money intricately within the financial system. Serving as Madoff’s primary bank for over two decades, JP Morgan was one of the culprits of Madoff’s fraudulent actions and money-laundering tactics. In their innocent incompetence to identify clear red flags about Madoff’s returns and file a Suspicious Activity Report (SAR), JP Morgan’s was fined $1.7 billion in 2014. JP Morgan’s fine highlights the... [Read More]

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Risk & Compliance FICO Is a Category Leader in IFRS 9 Solutions – Chartis

Chartis report cover
Jun222017

FICO has been named a Category Leader in IFRS 9 solutions by Chartis Research in its report IFRS 9 Technology Solutions: Market Update 2017. “Like other regulatory mandates of the past decade, IFRS 9 is another transformational event for all financial institutions (FIs),” the report states. “In all likelihood, it will reduce FIs’ profits and retained earnings, increase their loan loss provisions, and have a negative impact on their regulatory and economic capital. To mitigate these impacts, FIs will have to rely heavily on the rigor of their data management and the quality of their data, and on the application of Expected Credit Loss (ECL) modeling and overall governance.” The FICO® IFRS 9 Impairment Management Solution includes industry-leading predictive modeling for loss forecasting; software for high-speed model execution, loss reporting, process governance and “what-if” scenario analysis; and strategy consulting from advisors with extensive domain and analytics expertise. “Effectively addressing the challenges of this... [Read More]

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Risk & Compliance FCA’s New Rules for UK Credit Line Increases

FCA logo
Jun192017

My last two posts in this update on UK cards discussed the growth in unused credit and the rising delinquencies in New cards. Both of these posts discussed credit line increases, but there’s one more factor that could weigh heavily on issuers’ plans. The FCA is preparing to introduce new guidelines for credit cards that will impact line increases. It is anticipated that all new accounts will have to opt in for any offered increases, and this is expected to reduce the number of increases that take place. The approach for existing customers should remain as per today, where customers have to reject the offer. However, customers who display a sustained propensity to pay the minimum payment (on non-promotional balances) will either have to opt in or be excluded from increases. Customers showing signs of persistent debt (based on how much they have paid in fees and interest versus reducing their balance)... [Read More]

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Risk & Compliance “We Can Change Our Strategies in 2 Days” – African Bank

African Bank logo
Jun152017

African Bank, a large retail bank in South Africa, recently went through a large-scale restructuring in order to bring more efficiency, transparency and collaboration to the way it made decisions. Working with FICO, the bank applied a standards-based decision management methodology to fully modernize its decision system. Now that the new solution has been implemented, we spoke with Dawid Van Zyl, Program Executive of Credit Decisioning at African Bank, to learn more. Q: What challenges was African Bank facing with its existing credit decision process? Dawid: Our credit decision lifecycle was fragmented over different applications and teams. This was causing inefficiencies and missed opportunities for our executives to react to the market. We knew we needed to do a complete overhaul of the existing process in order to be effective and profitable. Q: How did you and the FICO team create a solution for this challenge? Dawid: The first step... [Read More]

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Risk & Compliance GDPR – Two First Steps for Collectors

GDPR logo
Jun152017

If my last post on GDPR and collections left you feeling mildly depressed, you’re paying attention! Now that we’ve scoped out the difficulties, here are a couple of things you can do to prepare. And preparation, like compliance, is important: GDPR sets out some steep fines for non-compliance, and you don’t want your department — or your vendor — to be the trigger. 1. Create Your Data Inventory GDPR wants you to only use the data that is absolutely necessary. Whether your decisions are based on rules or algorithms, you’re going to have to show what data you are using and how it impacts decisions in collections. As someone executing collection strategies, you want to make sure neither you, your department nor the third parties serving you cause the business to be exposed. You need to make sure you understand where the data you’re using comes from, and prove that... [Read More]

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Risk & Compliance 5 Questions Risk Managers Need to Ask About PSD2

PSD2 with question mark
Jun122017

The Second Payments Services Directive or PSD2 will bring tremendous changes to the payments world in the coming months. But what does it mean for risk managers? That’s one issue we grappled with at FICO’s recent EMEA Risk Leadership Forum. Today I believe we have more questions than answers. Bear in mind that the goal of PSD2 is to enable customer migration and incent market competition. It’s the finance equivalent of being able to keep your phone number when you switch providers. That’s fantastic if you’re a new entrant, not so fantastic if you’re a bank being forced to share your accounts’ details with new competitors. But PSD2 is more than just open banking. It creates two new players – the Payment Initiation Services Provider (PISP) and the Account Information Services Provider (ASIP). While most banks will be one or both of these, so will many other market participants, such... [Read More]

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Risk & Compliance PSD2 Is Coming and Nobody Knows It

Bar with sign about card surcharge
Jun072017

Many of you reading the headline will be thinking – yes we do! We are even getting bored of talking about PSD2. But I’m not talking about us in our payments bubble. I’m talking about the general public. Small business owners and people in love with their Amazon 1-Click don’t know that PSD2 is about to rock their world, or at least change how they take and make payments. Last night I went to a local pub and while sipping my Merlot noticed a sign behind the bar “50p surcharge on card payments below £10”. It’s not unusual to see variations of this sign in small businesses, and no one has told them that from January they won’t be able to surcharge. I spoke to the barman, who turned out to be quite savvy about card payments, but he hadn’t heard of PSD2 and didn’t know that this would happen.... [Read More]

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Risk & Compliance Early Warning Signs on New UK Card Accounts

Pile of credit cards
Jun072017

As noted in my previous post, over the last five years there has been significant growth in exposure, card balances, sales and, to a lesser extent, cash usage on UK cards. This is despite a decrease in the number of total accounts, as acquisitions have not outpaced attrition. Looking at our March 17 report, less than 1% of total card accounts were booked that month, and just under 8% of accounts had been on the books 12 months or less, showing slow growth rates. Fortunately, payments growth has exceeded these metrics and total 1 to 3 cycle accounts and balances decreased over this period. That reduction in delinquent balances isn’t true across the board, though. If you look at the vintage level, you see a different story. Veteran accounts (5+ years) are responsible for the positive news above, and to a lesser extent Established (on the books 1 to 5... [Read More]

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Risk & Compliance How Do FICO Scores Bounce Back After Negative Credit Info is Purged?

FICO Score logo
Jun052017

In the depths of the Great Recession, tens of millions of consumers had lapses in meeting their credit obligations. Some seven years down the line, those missed payments are being purged from credit reports in accordance with the Fair Credit Reporting Act, and these consumers may now be looking at a clean (or at least cleaner) slate. To find out how the FICO® Scores of these consumers might be impacted by this negative information being purged, FICO conducted research on a random representative sample of the 28 million US consumers who had a serious delinquency (defined as 90 or more days past due) between 2009 and 2010. This sample was divided into two groups: Those who had a delinquency removed from their credit report between May 2016 and July 2016. We’ll refer to this group, which numbers about 6 million nationally, as the “delinquency purge” population. Those who did not... [Read More]

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Risk & Compliance Collectors — Get Ready for the IFRS 9 Bucket Challenge

Ice bucket challenge photo
Jun012017

Remember the ice bucket challenge craze? Get ready for the IFRS 9 bucket challenge — it’s even more startling, and nobody’s standing by to give you a warm towel. Like GDPR, IFRS 9 poses major challenges for collectors, just as it does for accountants, IT, risk managers and anyone else in the credit business. So now let’s talk about what you can do. Note: While I’m just talking about IFRS 9 here, you do have to approach it and GDPR in concert, because in some areas they seem to be in conflict. You don’t want to gear up for IFRS 9 and then realize you have to undo some of your strategies or processes to avoid GDPR fines. Build your 30-day plan IFRS 9 says if a customer’s risk deteriorates — including becoming 31 days overdue — they go into Stage 2, and you have to start holding lifetime impairment.... [Read More]

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