Fraud remains a significant threat to the UK and those operating in the regulated financial industry.
Latest figures show that fraud accounts for 36 per cent of crime reported, with 3.2mn instances reported in March 24, according to the Office for National Statistics.
In addition, the Financial Conduct Authority estimates that £1.17bn was taken from UK customers in payment scams in the past year alone, with authorised push payment (APP) fraud losses (where customers are tricked into approving online bank transfers to criminals) reaching £459.7mn.
The increase in fraud reports is due to a myriad of reasons.
There has been a significant growth in investment fraud on social media where fraudsters demand payment by credit or debit card, making it easier to target vulnerable consumers.
These consumers are also making more claims than ever before, as multiple claims are made when funds pass through several banks before reaching the fraudster.
It is clear that with the number of reports rising so dramatically, financial institutions need to do more to raise awareness among individuals and prevent them from falling victim to fraud.
With new legislation coming into effect in October, giving banks the power to pause payments to investigate fraud, alongside new major regulatory protections for victims of APP scams coming into force, what can banks do to prepare for the increased regulatory scrutiny around fraud and how can they better help victims?
Measures to protect from financial crime
There are clear areas of focus that banks can take to protect themselves from financial crime, themed around collaboration, partnerships and disruption.
Collaboration is vital for a system-wide approach to tackling and reducing financial crime and fraud. This is particularly important with the timely sharing of information and intelligence to drive the continual evaluation of customer risk assessments and maintain assurance processes through the customer lifecycle within banks.
Secondly, partnerships including data-sharing initiatives, and sharing the use of emerging technologies, provide the opportunity to collectively fight back against criminals who are unfortunately a step ahead in finding ways to innovate and use technology to further harm.
Finally, disruption where possible is recommended rather than the historical approach to financial crime management of a purely reactive response. This can be achieved by targeting the use of mule accounts – the accounts used to help criminals ‘cash out’ their illicit proceeds.
This is again linked to enhanced intelligence sharing across the financial sector – an approach that is being driven by groups including the Global Financial Innovation Network.
Preparing for increased regulatory scrutiny
Starling Bank was recently fined for its inadequate controls and processes for managing financial crime. This included reported failings in their approach to customer due diligence and sanctions compliance.
So, how can other challenger banks learn from this and take the opportunity to review the robustness of their responses?
