FFIEC RDC Guidance

The Federal Financial Institutions Examination Council, FFIEC, issued its long-awaited guidance on remote deposit capture risk management in January 2009. In our view, the guidance provides prudent measures for financial institutions to consider as they seek to fully-leverage RDC for deposit growth and customer convenience. Importantly, the guidance contained no surprises, and did not impose fundamental limitations on what banks could do with RDC. We welcome this outcome. That said, we found two aspects of the guidance disappointing. The guidance introduces remote deposit capture as a “deposit transaction delivery system” not simply a “new service”. We couldn’t agree more. But the guidance equates all forms of distributed image capture, branch capture, teller capture, ATM capture and merchant/client capture as RDC. While all forms of distributed capture share a common technology, the risks associated with each vary considerably. The focus belongs on distributed capture taking place by untrained ordinary non-bank employees. Financial institutions have been managing check image capture for well over a decade with good success. Guidance for those operations likely weren’t sought or needed. The other troubling aspect of the guidance in our opinion is that it failed to recognize the many operational benefits of distributed capture. Arguably, the work process improvements enabled by modern image workflows can reduce risk, not elevate it. For example, instead of relying on tellers as a first defense against check fraud (e.g., 100% manual inspection) and antiquated day-2 rules-based fraud systems, RDC enables a highly automated and efficient set of deposit review and risk management tools that can be applied in near real time.Suspect items can be routed (via image) to trained operators for review well before posting. With the sensible guidance issued, banks can now breathe a sigh of relief, and get busy leveraging this immensely popular technology instead of being paralyzed by highly over stated perceived risks.