I have heard this question posed and you may be asking yourselves:
Why are referral volumes (the potential that the account origination or maintenance process will get bogged down due to a significant number of red flags detected) such a significant operations concern?
These concerns are not without merit. Because of the new Red Flag Rules, financial institutions are likely to be more cautious. As a result, many transactions may be subject to greater customer identification scrutiny than is necessary.
Organizations may be able to control referral volumes through the use of automated tools that evaluate the level of identity theft risk in a given transaction. For example, customers with a low-risk authentication score can be moved quickly through the account origination process absent any additional red flags detected in the ordinary course of the application or transaction. In fact, using such tools may allow organizations to quicken the origination process for customers. They can then identify and focus resources on transactions that pose the greatest potential for identity theft.
A risk-based approach to Red Flags compliance affords an institution the ability to reconcile the majority of detected Red Flag conditions efficiently, consistently and with minimal consumer impact.
Detection of Red Flag conditions is only half the battle. Responding to those conditions is a substantial problem to solve for most institutions. A response policy that incorporates scoring, alternate data sources and flexible decisioning can reduce the majority of referrals to real-time approvals without staff intervention or customer hardship.