All financial institutions participate in the wire transfer network in some capacity—by sending or receiving wire transfers for accountholders or on behalf of the financial institution. Wire transfer characteristics include:
- involves a single-entry,
- is credit push,
- often large-dollar transactions that are transferred between parties quickly and
- typically irrevocable (which makes wires susceptible to significant losses and a high-risk aspect of financial operations).
The dynamic risk environment surrounding wire transfers is constantly changing. To address this, institutions should conduct comprehensive Wire Transfer Risk Assessments and establish robust risk management protocols. Management should continue to review and implement findings and recommendations addressed within the assessment and as required by their regulator(s).
Once an initial or ongoing risk assessment has been completed, financial institutions should conduct a Wire Transfer Audit to evaluate their controls related to wire transfers. This audit ensures compliance with relevant laws and regulations. Audit objectives that should be assessed include but are not limited to:
- Determine whether the policies, procedures and physical and logical controls regarding wire transfers are adequate.
- Compliance with regulations and guidance related to wire transfers.
- Regulation J, Subpart B
- Regulation E, Subpart B (Remittance Transfer Rule)
- Regulation CC
- Bank Secrecy Act/Anti-Money Laundering (BSA/AML)
- Office of Foreign Assets Control (OFAC)
- Uniform Commercial Code - Article 4A (UCC 4A)
- FRB Payment System Risk Policy
- Office of the Comptroller of Currency (OCC) Bulletin 2021-49: Payment Systems
- Federal Financial Institution Examination Council (FFIEC)
- Ensure employees involved in wire transfers comply with established policies and procedures.
- Determine whether adequate security is maintained over wire transfer operations and system administration.
- Ensure wire transfers are properly authorized and accurately completed.
- Ensure a recovery plan has been established for any internal or external failures.
While wire transfers inherently pose risks for financial institutions, effective risk management and thorough audits can significantly mitigate the potential for substantial losses. Wire Transfer Audits are designed to assist the financial institution in identifying potential areas that require stronger controls and/or increased focus.