Category Archives: Risk & Compliance

Risk & Compliance GDPR and Other Regulations Demand Explainable AI

Box stamped AI
May242017

The General Data Protection Regulation (GDPR) is a wide-ranging and complex regulation intended to strengthen and unify data protection for all individuals within the European Union (EU). A year ago I blogged about the data governance ramifications of GDPR, and in this blog I’ll focus on another facet of GDPR to talk about a related analytics topic: explainable artificial intelligence (AI). First, let’s start with GDPR. Article 22 of GDPR, “Automated individual decision-making, including profiling,” concerns the use of data in decision-making that affects individuals, such as a person applying for a loan. The regulation says: “1. The data subject shall have the right not to be subject to a decision based solely on automated processing, including profiling, which produces legal effects concerning him or her or similarly significantly affects him or her.” Point 2 of Article 22 describes exclusions (including situations involving the person’s explicit consent, such as applying... [Read More]

Leave a comment

Risk & Compliance Real or a Red Herring? What Should Banks think of the Fintech Threat?

May222017

By now, you likely know the talking points by heart… Silicon Valley is coming Millennials hate banks, so much so that a majority would rather visit the dentist than listen to what banks are saying New fintech products—across a wide range of areas including lending, wealth management, and payments—are going to lead to the unbundling of the financial services industry These talking points are deeply embedded in your brain because they are literally inescapable. If you have attended an industry conference, picked up a trade publication, or followed the conversation of the fintech intelligentsia on Twitter, you’ve been exposed to it. It can be difficult to separate the facts from the hype. However, it is vital that we do so. The question of whether fintech poses a significant competitive threat to financial institutions’ customer relationships, especially with Millennials (consumers age 22-37) and Gen Z (consumers age 18-21), has enormous implications... [Read More]

Leave a comment

Risk & Compliance NCAP Public Record Removals Have Little Impact to FICO Scores

May172017

The National Consumer Assistance Plan (NCAP) is a comprehensive series of initiatives intended to evaluate the accuracy of credit reports, the process of dealing with credit information, and consumer transparency. As a result of NCAP, in July 2017, the three credit reporting agencies (CRAs) are scheduled to make required changes to the criteria used to accept the reporting of a tax lien and/or civil judgment. It is anticipated that civil judgments and some tax liens will be removed from consumer reporting agency (CRA) data when this goes into effect, including previously reported tax liens and/or civil judgments that do not meet the new NCAP-related reporting requirements.  All credit scores that utilize CRA data will be impacted, including but not limited to FICO® Scores. FICO recently conducted research on the most widely used FICO® Score versions at all three CRAs to assess the impact of the NCAP-driven removal of public records... [Read More]

Leave a comment

Risk & Compliance IFRS 9: Three Critical Areas of Focus for Collectors

May152017

My colleague Bruce Curry recently published a blog on “IFRS 9 & Collections – The 31 Day Time Bomb”. During my various client interactions, I can see that many businesses are developing and testing the impairment models that will give them a good understanding on the financial impacts that the new standard will have on their balance sheet performance, but the operational implications are currently less clear. From a practical perspective, I believe there are three areas across collections that should be reviewed to mitigate the increases in impairment that are expected to result from IFRS 9: 1. Pre-arrears strategy – These strategies have been a topic of conversation for a number of years and their success has been mixed. IFRS 9 means that it is now more important than ever to adopt a “prevention rather than cure” approach in mitigating the risk, and flow, of accounts into Stage 1... [Read More]

Leave a comment

Risk & Compliance Truth Squad: Can Scoring Rental Data Vastly Improve Credit Access?

Truth Squad logo
May102017

There has been much discussion and several studies over the years regarding the potential value of leveraging rental data in assessing consumer credit risk. Which raises the question: Should rental data be widely reported to the three primary consumer credit agencies (CRAs)? If rental data was reported, this might mean some consumers without loans or credit cards would get a FICO® Score, and gain access to more affordable credit. But how many? And how many of these consumers would be considered creditworthy by prospective lenders? In 2015, FICO introduced FICO® Score 9, which scores rental data. This coincided with the first evidence of sufficient positive and negative rental data at the CRAs, a necessary condition for adding this data into the FICO Score algorithm. Great news, right? Well let’s take a deeper look at some of the facts around rental data in the credit report. Not Enough Rental Data in... [Read More]

Leave a comment

Risk & Compliance A New Way to Score Credit Risk – Psychometric Assessments

Hands holding globe
Apr272017

When young Russians apply for their first credit card at Sovcombank, they go through a fun, interactive survey that starts with the question, “How do you feel today?” What they’re doing is participating in a new type of psychometric credit scoring that could expand credit in markets worldwide. The scoring methodology was developed by EFL Global and marketed by FICO as part of our FICO Financial Inclusion Initiative, designed to open up credit markets around the world to a larger number of unbanked and underserved consumers. Sovcombank, a universal bank with more than 2 million customers, is using the score to “gamify” the credit application process. The EFL credit risk score is created through a dynamic behavioral design and psychometric assessment that analyzes character traits with a proven relationship to credit risk. It’s an ideal approach for applicants who do not have a credit history and therefore cannot be scored... [Read More]

Leave a comment

Risk & Compliance Video: Scotiabank Cencosud Cuts Model Development Times by +50%

Cencosud video interview image
Apr192017

Ever wonder how one of Chile’s largest retailers retains over 3 million customers? We asked Scotiabank Cencosud’s Claudia Guerrero, Model Development Manager of Risk Management in its Retail Finance division. In this Cencosud video, Claudia discusses how the retailer relies on a comprehensive, integrated credit portfolio management solution developed by FICO. This enables it to make better customer decisions, from originations through customer management. In particular, FICO® TRIAD® Customer Manager successfully manages risk-based strategies for credit line increases and cross-selling, and FICO® Model Builder has helped Scotiabank Cencosud cut model development times in half, while still retaining predictive strength — which the company sees as a tremendous competitive advantage. For more information, read the Cencosud case study or visit the FICO Model Management and Compliance solution page.

Leave a comment

Risk & Compliance Examining the Credit Cycle: Is This as Good as it Gets?

Credit-Cycle-Abstract-Featured-Image
Apr132017

More than 70 straight months of US job growth, the official unemployment rate down below 5%, and average hourly earnings growing at a seven-year high of 2.9%. Signs of approaching full employment finally allowed the Fed to see enough stability to inch up rates without being seemingly blown off course by events elsewhere. There will be more rate hikes to come if the economy stays on this course, and in the event the deficits grow, it will pretty much guarantee what we already expect on the interest rate front. With all this in mind, it’s a good time to ask: Has the US credit cycle reached the top? Is it as good as it gets? Of course, we never know that for sure. This is all opinion (some would say speculation), especially on the economic policy front. But you have to feel that if it isn’t the top we are... [Read More]

Leave a comment

Risk & Compliance Behavioral Analytics Attack Fraud, Cyber and Financial Crime

Hand holding analytics
Apr122017

Economies of scale is one of my favorite economic principles. It’s especially cool to see how FICO customers can realize associated benefits by using our behavioral analytic technology. IDC predicts that in 2017, behavioral analytics across compliance, fraud, and cyber detection and prevention will be in place at 15% of banks, helping them to avoid losses, regulatory fines and sanctions. Banks have already made a big start in the fraud space. FICO introduced behavioral analytics in the early 1990s and we currently analyze two-thirds of the world’s payment card transactions, in real time, for fraud. Now, FICO’s proven behavioral analytics can be applied by forward-thinking institutions to fight a wide range of financial crimes. In doing so, banks can gain powerful technology economies of scale, too, leveraging mature, market-proven analytic models to benefit new domains within their business. How do behavioral analytics work?   A quick search may tell you that... [Read More]

Leave a comment

Risk & Compliance Three Top Regulatory Themes Emerge from Debt Collection Panel

Three Regulatory Themes
Apr102017

I recently moderated a regulatory panel discussion before a group of nearly 100 collections and recovery (C&R) professionals at the FICO® Debt Manager™ User Group Forum. The esteemed panel consisted of a mix of veteran policy and business leaders, including: Maria Wolvin, Vice President and Senior Counsel of Regulatory Affairs at ACA International; Terry Collins, Collections and Recovery Manager at Trustmark National Bank; and Lucia Lebens, Vice President of Government Relations and Public Policy at Navient. Much of the discussion focused on what C&R professionals can expect in the new US regulatory environment that has emerged in the wake of the November elections. While our experts spoke on a number of hot-button topics, three main themes emerged. CFPB Debt Collection Rulemaking Will Likely Move Forward The panel discussed the CFPB’s continued focus on developing new debt collection regulations. The CFPB has indicated that its next pre-rule action will be the... [Read More]

Leave a comment