Followers of the Dodd-Frank Wall Street Reform and Consumer Protection Act are mining proposed rules and other hints from regulators for clues about what bank technology changes they will require. One place to look may be the law's potential to give the Fed lots of influence over tech policy.
So far, Dodd-Frank has provided more worries for chief operating and compliance officers than chief technology officers at banks, says Samantha Regan, an executive with Accenture's financial services practice. That's because most of the government agencies charged with implementing regulations based on Dodd-Frank — such as the Office of Financial Research — have yet to produce finalized rules that will require tech updates.
One set of finalized rules for banks that is expected soon, by July 21, is the Federal Reserve's requirements capping the portion of debit card transaction fees that go to the banks that issue the cards — the interchange fee, says Aaron McPherson, global-payments practice director with IDC Financial Insights. Based on the Fed's draft rules on the issue, the agency is expected to cap that part of the fee, for banks with assets of $10 billion or more, at 7 to 12 cents per transaction instead of the 1.5% to 2% of the transaction that the card-issuing bank receives currently.
The new debit card rules are also expected to include a provision to allow banks to recover their costs due to fraud through the interchange fee, McPherson says. Two alternatives are possible: banks would document their fraud losses and the Fed would allow them to add to the interchange fee for compensation, or the Fed would create an approved list of fraud-protection technology, and the banks' investments in those technologies could be recouped through interchange charges.
One problem with an approved technology list would be that the Fed would be put in a "kingmaker" position, and have to deal with technology providers jockeying for position, McPherson says. But it could also help push EMV and smart-card adoption.
One difficulty for banks trying to anticipate technology changes is the legislative history, which favors competitive pricing for payment systems. The challenge for the Fed will be how to encourage emerging payment systems, yet try to figure out what kind of regulatory fence to place around one system if it achieves critical mass, placing the agency in the position of anticipating which system will emerge.
Bottom Line: The law's a sleep-depriver for COOs right now, but CIOs should keep an eye on how the Fed's new duties will guide tech policy.
