Referral Volumes as a Significant Operations Concern
Question: Why are referral volumes (the potential that the account origination or maintenance process will get bogged down due to a significant number of red flags detected) such a significant operations concern?
Answer: These concerns are not without merit. Because of the new Red Flags Rule, many covered institutions are likely to implement more identity theft prevention measures than previously employed. With this increased scrutiny will follow a greater volume of accounts and associated transactions segmented for further review.
Organizations may be able to control referral volumes through the use of automated tools that evaluate the level of identity theft risk in a given transaction. For example, customers with a low-risk authentication score can be moved quickly through an account origination process absent any additional relevant Red Flags detected in the ordinary course of the application or transaction. In fact, using such tools may allow organizations to expedite the origination process, benefiting both legitimate customers and operational processes. At the same time, the finite pool of operational and financial resources then can be used on those applications and transactions that pose the greatest potential risk for identity theft.
A risk-based approach to Red Flags compliance allows an institution the ability to reconcile the majority of detected Red Flag conditions accurately, efficiently, consistently and with minimal consumer impact. Conversely, a simple rules-based approach, incorporating more binary decisions relying solely on the presence or absence of a Red Flag condition, leads to substantial and often unmanageable false positives and referral volumes.
Identification and detection of Red Flag conditions are only half the battle. Responding to those conditions is both a requirement of the guidelines and a substantial problem to solve for most institutions. A response policy that incorporates scoring, alternate and comprehensive data sources, and flexible decisioning can reduce the majority of referrals to real-time approvals without staff intervention or customer inconvenience.
For more information on how your institution should respond to the Red Flags Rule requirements, visit click here.
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First published on BankersOnline.com 10/27/08
First published on 10/27/2008