Electronic Banking: New Challenges for Bank Regulation
The advent of electronic banking has raised new concerns for banking regulation, specifically about security and privacy. Worries about the security of electronic banking and e money are an important barrier to their increased use. With electronic banking, you might worry that criminals can access your bank account and steal your money by moving your balances to someone else’s account. Indeed, a notorious case of this happened in 1995, when a Russian computer programmer got access to Citibank’s computers and moved funds electronically into his and his conspirators’ accounts. Private solutions to deal with this problem have arisen with the development of more secure encryption technologies to prevent this kind of fraud. However, because bank customers are not knowledgeable about computer security issues, there is a role for the government in regulating electronic banking to make sure that encryption procedures are adequate. Similar encryption issues apply to e money, so requirements that banks make it difficult for criminals to engage in digital counterfeiting make sense. To meet these challenges, bank examiners in the United States assess how a bank deals with the special security issues raised by electronic banking and also oversee third party providers of electronic banking platforms. Also, because consumers want to know that electronic banking transactions are executed correctly, bank examiners assess the technical skills of banks in setting up electronic banking services and the bank’s capabilities for dealing with problems. Another security issue of concern to bank customers is the validity of digital signatures. The Electronic Signatures in Global and National Commerce Act of 2000 makes electronic signatures as legally binding as written signatures in most circumstances. Electronic banking also raises serious privacy concerns. Because electronic transactions can be stored on databases, banks are able to collect a huge amount of information about their customers—their assets, creditworthiness, purchases, and so on—that can be sold to other financial institutions and businesses. This potential invasion of our privacy rightfully makes us very nervous. To protect customers’ privacy, the Gramm Leach Bliley Act of 1999 has limited the distribution of these data, but it does not go as far as the European Data Protection Directive, which prohibits the transfer of information about online transactions. How to protect consumers’ privacy in our electronic age is one of the great challenges our society faces, so privacy regulations for electronic banking are likely to evolve over time.