ALTA Title Topics

Richard M. ReassRichard M. ReassCEO/President, RynohLiveCEO/President, RynohLivedick.reass@rynoh.comdick.reass@rynoh.com

Today’s EnvironmentToday’s Environment

Escrow Standards DatedEscrow Standards DatedAdvantage CriminalAdvantage Criminal

Monthly Reconciliation

No Positive Pay

Good Funds

Ignore Banking Regulations

Audit Standards Lax

Inadequate Controls - Conflicting Guidance - Agent and Underwriter at RiskInadequate Controls - Conflicting Guidance - Agent and Underwriter at Risk

New York Bureau of InsuranceNew York Bureau of InsuranceAnti-Fraud Task Force FindingsAnti-Fraud Task Force Findings

Raising The BarRaising The Bar

Software - Systems - Procedures - BankSoftware - Systems - Procedures - Bank Automated ReconciliationAutomated Reconciliation Positive Pay w/ Payee MatchPositive Pay w/ Payee Match Online Bank Wiring /Cyber ProtectionOnline Bank Wiring /Cyber Protection Robust Settlement SoftwareRobust Settlement Software

Administrative ControlsAdministrative Controls

Freeze FilesFreeze Files

Track ChangesTrack Changes

Prevent Disbursing Uncollected FundsPrevent Disbursing Uncollected Funds

Built-in Audit and Fraud MonitoringBuilt-in Audit and Fraud Monitoring

Escrow Standards RightEscrow Standards RightAdvantage Attorney/AgentAdvantage Attorney/Agent

““Insanity: doing the same thing over and over Insanity: doing the same thing over and over again and expecting different results.”again and expecting different results.”

Escrow Management PracticesEscrow Management Practices

Disbursing Control Disbursing Control o Settlement Software utilizationo “Balanced” fileso Funds Verificationo Check Signing

Factors Often Neglected by AgentFactors Often Neglected by Agento Items “Banked but not Booked”o Negative File Balanceso Pending Depositso Retained Fundso Stale Dated Checks

Positive PayPositive Pay

Bank only clears validated checksBank only clears validated checks

– Payee Match or Non-Payee Match

– Teller Line Positive Pay

– Check Fraud - Who is Liable?• UCC Sections 3-103(9) and 3-406

• Reasonable commercial standards

• Ordinary - Comparative Fault

““Only Bank with Banks offering Positive Pay”Only Bank with Banks offering Positive Pay”-Frank Abagnale, ALTA Conf 2003 -Frank Abagnale, ALTA Conf 2003

Remote Deposit CaptureRemote Deposit Capture

““The most important banking development in years”The most important banking development in years”

– The RDC ProcessThe RDC Process Scanner to BankScanner to Bank

Image Replacement DocumentImage Replacement Document

– Agent ResponsibilityAgent Responsibility Risks & LiabilitiesRisks & Liabilities

– Deposit Cut-off TimesDeposit Cut-off Times

– Funds AvailabilityFunds Availability Late ClosingLate Closing

Disbursing Collected FundsDisbursing Collected Funds“Irrevocably Credited”“Irrevocably Credited”

Good Funds ≠ Collected FundsGood Funds ≠ Collected Funds• Expedited Funds Availability Act 1987Expedited Funds Availability Act 1987

• AZ 6-843 citationAZ 6-843 citation

• Underwriter Guidance Underwriter Guidance • Statute Definition v. Bank DefinitionStatute Definition v. Bank Definition• Banking Regulation CCBanking Regulation CC

Collected Funds LegislationCollected Funds Legislation• Limit Good Funds at SettlementLimit Good Funds at Settlement• Illinois $50,000Illinois $50,000• Utah, Indiana & North Dakota $10,000Utah, Indiana & North Dakota $10,000

““All Good Funds Are Not GoodAll Good Funds Are Not Good” - RMR” - RMR

Proxy Account Numbers (ZBA)Proxy Account Numbers (ZBA)

• Merely a pass through account

• Primary account protected– Wiring instructions used for check fraud

• Wires can’t be recalled– It happens despite Fed Wire rules

• ACH cannot occur

ZBAPrimary Accoun

t

• Malicious software Malicious software spreads through emailsspreads through emails

• New variants each day go New variants each day go undetectedundetected

• Steal login credentialsSteal login credentials

• Modify wire and ACH Modify wire and ACH transactionstransactions

• Thwart even the latest Thwart even the latest anti-fraud measuresanti-fraud measures

PC Target Of PC Target Of AttacksAttacks

Bank WiringBank Wiring

ZeuS, SpyEye, OddJob, and Ramnit.thZeuS, SpyEye, OddJob, and Ramnit.th

Dual ControlsDual Controls

MMalware Protection!alware Protection!

NACHA & FBI GuidelinesNACHA & FBI Guidelines

Dedicated ComputerDedicated Computer

Banking Only UseBanking Only Use

Malware ProtectionMalware Protection

Automatic UpdatesAutomatic Updates

Strong AuthenticatioStrong Authentication

Corporate Account TakeoverCorporate Account TakeoverAvailability Exception OptionAvailability Exception Option

Specifically, the Availability Exception Option Rule:

Provides an RDFI that reasonably suspects that a credit Entry is unauthorized with an exemption to the Rules provisions requiring the RDFI to make certain credit Entries available to customers more quickly than required to under Regulation CC; andRequires the RDFI promptly to notify the ODFI if the RDFI makes use of this exemption to the funds availability requirements of the Rules. This exemption does not allow the RDFI to delay availability because of the RDFI’s own errors in processing an Entry.

The New ParadigmThe New Paradigm

Daily Account ReconciliationDaily Account Reconciliation

Positive Pay w/ Payee MatchPositive Pay w/ Payee Match Collected FundsCollected Funds Expanded Review/ OversightExpanded Review/ Oversight Reduces Disbursing Losses / ErrorsReduces Disbursing Losses / Errors

Virtually Eliminates FraudVirtually Eliminates Fraud

Thwarts EmbezzlementThwarts Embezzlement

Upcoming EventsUpcoming Events

• Business Strategies Conference, March 25-27 in Louisville

• Go to www.alta.org/meetings for more information and to register