Article

Regulations pose significant challenges for IADs in the coming year

Fines, internal costs and downtime are among the potential penalties for noncompliance.

November 13, 2011 by Kim Williams — Reporter, NetWorld Alliance

The following is the introduction to the ATM Compliance Handbook 2012, recently published by ATMmarketplace.com.

Hardly a month goes by without the consumer press reporting another hack on a major card data network or yet another clever scheme to steal card numbers and PINs. The same holds true for business publishers when it comes to stories about regulations and guidelines to prevent additional card-related crimes. And for ATM deployers, the strictures are not tied exclusively to criminal felonies: One of the more daunting sets of regulations currently in front of them relates to the very basic facts of a machine's location and other attributes that impact the ability of the disabled to use it.

Deployers who fall afoul of the guidelines and regulations—some of which have yet to be fully defined—face a nasty mix of potential fines, internal costs and downtime, and loss of public confidence.

In the U.S., compliance with the Americans with Disabilities Act holds the potential for significant costs for upgrades of machines and installations. Depending on the manufacturer and age, an ATM may require upgrades to meet the audio assistance, keypad and screen blanking mandates of the ADA, among other requirements.

U.S. ATM operators are also required to provide notice to customers of ATM transaction surcharge fees under Regulation E of the Electronic Funds Transfer Act. Lack of a comprehensive surcharge fee disclosure notice program can open an operator up to costly legal fees.

Also on the horizon for the U.S. market is the implementation of the EMV, or chip-and-PIN, payment card security program. Visa Inc. announced its plans for merchants to upgrade the payment card infrastructure to accept EMV cards. In its announcement, Visa stated that liability, in the event of fraud, will shift from the card issuers to whichever party in the payment chain is not EMV compliant. Although ATMs were not mentioned specifically in the first announcements from Visa, the liability shift seems inevitable for the U.S. market.

These compliance challenges come on the heels of investment to meet Triple DES and PCI requirements. In talking with industry experts, it was surprising to hear the estimates of the number of ATM operators who have not yet complied with these existing basic regulatory requirements.

The current regulatory environment has seen the formation of new government agencies and implementation of new laws, as well as a continued rise in ATM fraud activity around the globe.

The flow of funds from illegal activities amounts to billions of dollars per year, moving among countries and bank accounts in an effort to make the funds appear legitimate. In the U.S., anti-money laundering rules currently apply only to FIs and designated money services businesses. Canada recently passed the Money-Services Business Act, requiring ATM operators, owners and lessees to pay licensing and insurance fees.

To make U.S. Federal Reserve Notes more accessible, the U.S. Bureau of Engraving and Printing is changing the design of the nation's currency. The challenge for ATM operators is accommodating the changes to the installed base of more than 400,000 ATMs in the U.S. Banknotes in many other nations, such as Canada, Australia and South Korea, also incorporate features that make them accessible to the blind and visually impaired.

The Office of Foreign Assets Control, an office of the U.S. Department of the Treasury, administers and enforces the U.S. government's sanctions programs. Depending on the particular restriction at issue, OFAC regulations can restrict exports and imports to blocked entities or countries, the provision or purchase of services, financial transactions with blocked countries or entities and restrictions on travel. Financial transactions involving sanctioned parties may be blocked or rejected.

Particularly with the formation of the Consumer Finance Protection Bureau, ATM operations will be under greater scrutiny now more than ever. A high-profile security breach, large-scale fraud and consumer dissatisfaction all could result in increased regulatory burdens that also raise costs for operators.

Despite lobbying for inclusion of ATMs in the Durbin Amendment, ultimately ATM operators and networks were not part of the new regulations. However, beginning July 21, 2012, debit and general-purpose prepaid cards will not be exempt if the cardholder may be charged either an overdraft fee or a fee for the first withdrawal each month from ATMs in the issuer's designated ATM network.

From an insurance perspective, ATM operators face a wide range of risks, from acts of God to acts of unscrupulous employees. Companies an IAD does business with will want to see proof, in the form of insurance certificates, that the ATM and the cash are adequately protected against these kinds of risk. A comprehensive insurance program can help manage those risks and ensure compliance with requirements.

For all of these scenarios, ATMmarketplace.com has published the ATM Compliance Handbook 2012. For more information, click here.

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