The American Land Title Association (ALTA) released its ALTA Best Practices Framework version 4.0 on January 23, highlighting updates for Pillars 2, 3 and 4.
Many of the updates are in response to how processes have changed in the title insurance industry, including the use of remote online notarization, the increasing presence of remote workers, new technologies in play, especially when it comes to funds transfers, and the increasing threat from wire fraud and other cybercrimes.
Pillar 2, which focuses on escrow accounting practices, in particular features several changes including updates for the treatment of non-settled funds and outstanding file balances, use and treatment of fintech applications, escrow funds training, use of the ALTA Outgoing Wire Preparation Checklist, and the use of wire verification services.
Let’s look at a few of those changes that impact your escrow practices.
Loss of funds
Given the increase in wire fraud over the past decade, one of the most important notations in the update is the reminder that loss of funds may not be covered by errors and omissions (E&O) insurance or covered under the scope of the contract with your title underwriter. Those losses would then become your responsibility.
Action Step: In light of this risk, it is imperative that you clarify what is covered under your E&O insurance and have a thorough understanding of what claims are and are not covered by the title underwriter in relation to loss of funds.
Fintech applications
In addition to ensuring policies and procedures are in place that prohibit or control the use of Automated Clearing House (ACH) transactions and international wire transfers, the updated best practices include adding policies and procedures for electronic/digital receipt of funds from web based fintech applications.
According to the updated best practices, “When utilizing a third-party earnest money deposit or disbursement platform that facilitates the digital transfer of Escrow Trust Account receipts and disbursements, ensure that the platform meets any good funds law requirements and is not subject to the Electronic Funds Transfer Act (EFTA) which allows for reversal of consumer payments.”
EFTA, enacted in 1978, resulted in the Federal Reserve’s Regulation E, which provides the rules and regulations for businesses using electronic funds transfers for the purpose of protecting consumers from unauthorized transfers from their accounts. EFTA has been updated to address new electronic payment technologies.
However, from it’s inception, wire transfers have been excluded from EFTA, and the updated best practices want to ensure that the fintech platforms agents are using are not subject to EFTA, so that escrow account funds transfers are not inadvertently or fraudulently reversed.
Action Step: Enlist extra precautions when using fintech applications for funds transfers, due to increasing cyber threats that could make the application susceptible to identity theft or account takeovers. Vet your applications carefully to ensure high-level safety precautions and protocols are in place.
Multi-factor authentication
Significantly, the new best practices include the requirement that procedures to verify wire transfer instructions should include the use of multi-factor authentication. This procedure is now included as part of ALTA’s Outgoing Wire Preparation Checklist.
Action Step: Download the ALTA Outgoing Wire Preparation Checklist, available at https://www.alta.org/business-tools/information-security.cfm to review and update your wire transfer procedures.
Escrow balances review and daily reconciliation
And finally, procedures are updated to require manager approval of aging escrow file balances and that the daily reconciliation process identify and investigate any discrepancies using either electronic or manual processes.
Action Step: Update your training protocols to ensure these new requirements are understood and implemented by staff or third-party service providers.
To review all of the updated best practices, visit ALTA at ALTA - Best Practices,
At Positively Balanced, our reconciliation services offer the most updated and secure procedures to meet all of your requirements. Call us today to learn more!