Business case or incident in which a financial or consumer breach/crime occurred

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The financial industry is highly regulated. Banks, lending institutions, and financial investment firms or advisors must adhere to stringent legal requirements to transact business. All these requirements are intended to protect the customers or investors from fraudulent schemes and provide them with all the relevant information to be able to make informed decisions.

Two of the main laws that still regulate securities are the Securities Act of 1933 and the Securities Exchange Act of 1934.

The Securities Act of 1933 is often referred to as the “truth in securities” law, and it has two basic objectives:

require that investors receive financial and other significant information concerning securities being offered for public sale; and
prohibit deceit, misrepresentations, and other fraud in the sale of securities.
The Securities Exchange Act of 1934 allowed Congress to create the Securities and Exchange Commission. The Act empowers the SEC with broad authority over all aspects of the securities industry. This includes the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies as well as the nation’s securities self-regulatory organizations (SROs). The Act also identifies and prohibits certain types of conduct in the markets and provides the Commission with disciplinary powers over regulated entities and persons associated with them. It also empowers the SEC to require periodic reporting of information by companies with publicly traded securities.

There have been enhancements to these Act that have been enacted since then Trust Indenture Act of 1939 or Investment Company Act and Invest Advisor Act, both enacted in 1940.

In addition to the regulation of the financial side of the business, there is heightened regulation relating to consumer privacy. Consumer privacy involves the handling and protection of the sensitive personal information provided by customers during everyday transactions. The internet has evolved into a medium of commerce, making consumer data privacy a growing concern.

This form of information privacy surrounds the privacy and protection of a consumers personal data when collected by businesses. Businesses must implement standards for consumer privacy to conform to local laws and to increase consumer trust, as many consumers care about the privacy of their personal information.

Some of the more common concerns in reason years would include the Do Not Call list, access to medical information, opt out options for personal information to be sold to business partners, and breaches in technology. Regulations enacted in recent years attempt to address these issues and many more facing consumers.

Watch these short videos for an introduction to financial and consumer regulations.

Financial Regulations

 

Consumer Regulations and Community Development

 

Research a recent business case or incident in which a financial or consumer breach/crime occurred; you might look on the Internet or daily news. You might even find a case on the television news! Please be sure to cite your source in APA format.

In your original post, answer the following:

Describe the financial or consumer breach/crime that occurred.
Confirm and explain the breach/crime that was committed.
What could the company have done to minimize their exposure to such a crime?
Confirm the outcome of the case.
If the case has not been decided, tell us what you think will happen and why.
What sort of punishment or compensation is there or should there be?

 

Sample Solution

Financial Crime: Data Breach

Description: In June 2022, Flagstar Bank, a major financial institution in the United States, suffered a massive data breach exposing the Social Security numbers of nearly 1.5 million customers [Source: UpGuard, 10 Biggest Data Breaches in Finance, https://www.itsecurityguru.org/2023/10/10/over-800k-flagstar-bank-customers-impacted-by-third-data-breach-since-2021/]. This marked the second such attack on the bank in just two years, raising serious concerns about their data security practices.

Confirmation and Explanation: The exposed information included Social Security numbers, a critical piece of personal data used for financial transactions, tax filing, and government benefits. Hackers could potentially use this information for identity theft, opening fraudulent accounts, or accessing existing ones.

Minimizing Exposure: Flagstar Bank could have minimized their exposure through several measures:

  • Enhanced Security Protocols: Implementing stronger encryption methods, regularly updating software, and conducting thorough security audits could have made it more difficult for hackers to gain access.
  • Employee Training: Educating employees on cybersecurity best practices, including identifying phishing attempts and proper data handling, could have reduced the risk of human error.
  • Customer Awareness: Proactive communication with customers about data security measures and potential risks could have fostered trust and preparedness.

Outcome: Details about the perpetrators or the extent of the misuse of stolen data are not publicly available yet. Flagstar Bank initiated an investigation and offered credit monitoring services to affected customers [Source: UpGuard, 10 Biggest Data Breaches in Finance, https://www.itsecurityguru.org/2023/10/10/over-800k-flagstar-bank-customers-impacted-by-third-data-breach-since-2021/].

Future Implications: The case is likely to result in hefty fines and penalties for Flagstar Bank from regulatory bodies. Additionally, lawsuits from affected customers seeking compensation for damages are also a possibility.

Punishment and Compensation:

  • For the Bank: Regulatory bodies like the Federal Trade Commission (FTC) can impose significant fines for data security breaches. Flagstar Bank may also face civil lawsuits from affected customers.
  • For Customers: Affected customers may be entitled to compensation for damages incurred due to the data breach, such as identity theft or fraudulent charges. This could include financial reimbursement, credit monitoring services, and legal assistance.

This case highlights the importance of robust data security practices in the financial industry. Consumers entrust banks with their sensitive information, and these institutions have a responsibility to safeguard it.

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