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Government watch
Prepaid Program Managers
Must Be exaM-Ready Bank PaRtneRs
In light of the intense regulatory focus and pressure on prepaid cards, it’s time for program managers to step up and manage their own compliance to the point of being “exam-ready.”
ViewpoinT
By Paul Reymann,
McGovern Smith Advisors LLC
In Viewpoints, prepaid and emerging pay- ments professionals share their perspectives on the industry. Paybefore endeavors to present many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.
There’s a tsunami of regu- latory attention1 on the oversight of third parties that provide critical activi- ties2 to financial institutions. In the prepaid world, this includes pro- gram managers (and other third parties)3 and the activities they provide for prepaid card programs, such as designing and running the card program, verifying cardholders’ identities, marketing and customer services. Increased regulatory oversight is coupled with an aggres- sive willingness on the part of at least six regulators to issue enforce- ment actions against banks and program managers for third-party violations of consumer protection and other regulations. Many recent enforcement actions have included multimillion dollar fines, sanctions and mandates to develop or correct written compliance programs.
Banks are addressing the double whammy of enhanced oversight and enforcement by stepping up their
third-party risk management, with emphasis on hot spots, including consumer compliance and AML, information security, vendor man- agement, business continuity and incident response. They are now performing initial and ongoing due diligence, monitoring and program manager audits to a very high standard. And, of course, they also are requiring program managers to do more to proactively address the hot spots.
With so much focus on third-party risk and compliance and so much riding on banks’ successful regula- tory exams, every prepaid program manager must adopt a culture that supports its issuing banks’ compli- ance and risk management require- ments. Failure to do so could cause banks to withdraw entirely as issuers (except for their own pro- grams, where they can control their risks completely); increase costs to the point that many programs won’t be viable; or become increasingly
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