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Company: ABC Bank Egypt

PR Contact: Hany Abouel Fotouh ([email protected])

Posted By: Medilyn Manibo ([email protected])

Published: Egypt, Sunday, May 11 - 2008 at 11:47 (GMT+4)

Media Value: US$ 3,250 (based on reach of audited readership)

Leading banker speaks on electronic bankingand risk mitigants in Bahrain

Abou-El-Fotouh, ABC BankEgypt, First Vice President spokerecently at Remote BankingFraud Management Forum inBahrain under the title of "Thefight against fraud crime andmoney laundering issues inelectronic payments.

"The constant development of electronic banking and electronic money contributes to improvingthe efficiency of the banking and payment system. However, banks should adopt methods foridentifying, assessing, managing and controlling the risks related to electronic banking andelectronic money," said Abou-El-Fotouh.

He said that banks have used electronic channels for years to communicate and transactbusiness. With the advent of the Internet, banks are increasingly using e-banking or Internetbanking to deliver their products and services to their customers. The open and automatednature of the Internet means that neither geography nor time may create major barriers betweenbanks and their e-banking customers. The common delivery channels include "closed" and"open" networks. "Closed networks" restrict access to participants bound by agreements on theterms of membership. "Open networks" have no such membership requirements. Currently,banks e-banking services through point of sale terminals, automatic teller machines, telephones,

personal computers, smart cards and other devices.

Explaining the term electronic money, Abou-El-Fotouh said, "Electronic money refers to "storedvalue" or prepaid payment methods for executing payments using point of sale terminals, direct

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transfers between two devices, or over the Internet. Stored value products include "hardware" or "card-based" mechanisms (also called "electronic purses"), and "software" or "network-based" mechanisms (also called "digital cash"). Banks may participate in electronic moneyschemes as issuers, or distributors of electronic money issued by other entities; redeeming the

proceeds of electronic money transactions for merchants; handling the processing, clearing,and settlement of electronic money transactions; and maintaining records of transactions.

He further added, "Due to rapid changes in information technology, it is not possible to compilean exhaustive list of risks. However, there are specific risks facing banks engaged in electronicbanking and electronic money activities. Among the different risk categories, operational risk,reputational risk, and legal risk may be the most important risk categories for most electronicbanking and electronic money activities. Other risks include, reputational risk, security risk,cross border risks, credit risk, liquidity risk and money laundering risk.

Abou-El-Fotouh explained that e-banking is vulnerable to abuse by money launderers. He said"it is attractive to money launderers if the systems offer liberal balance and transaction limits or

when there are limited or no audit trail. It would be difficult to apply traditional anti-moneylaundering rules for some e-payments due to factors such as relative lack of physical bulk;potential anonymity and payments can be conducted remotely,"

In order to mitigate the risks, banks should design adequate risk management strategy whichaddresses the risks having regard factors such as e-products characteristics, channels, targetcustomer, cross-border issues etc.

The risk mitigations should include the following among many others:

For prepaid cards: adequate due diligence before accepting non face-to-face before acceptingcustomer relationships; limiting funding options; limiting card value and\or the number of cardsthat individual can purchase and\or value per transaction; limiting cross-border access to cash

etc. Other factors for considerations include on-line interaction with card issuers or a centraloperators; monitoring and tracing individual transactions; maintenance of cumulative recordsin a central database; use of tamper-resistant devices incorporated into stored-value cards andmerchant hardware; implementing multi-factor authentication and enhance web sites withEmbed 'Secure Socket Layer' and Virtual Keyboards.

Abou-El-Fotouh concluded by saying, "We are becoming increasingly sophisticated in how weapply measures to combat international security threats of fraud in electronic banking. This newera requires that financial institutions and regulators search for threats to the financial system,and ensure such threats are effectively isolated. Through collaboration of key players, we cancontinue to build strong and relatively safe electronic banking markets."

Notes and Media Contacts

About Hany Abou-El-Fotouh

First vice president and group head of corporate governance and compliance, ABC Bank, Egypt. He is aleading expert on money laundering and terrorist financing controls in the Middle East-North Africa region withextensive experience in AML compliance and training. Founder of the Middle East Compliance Officers' Forum,he has been honored for his work in promoting compliance awareness in Egypt and the MENA region.Previously, he held top compliance positions in multinational institutions, such as HSBC Bank Egypt, BanqueSaudi Fransi, and Oman International Bank.

Disclaimer

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hany abou el fotouh_press quote (37)

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