Fighting Financial Fraud the Enterprise Way

It is estimated that financial crime costs industry organisations approximately US$20bn in losses annually, up from US$19bn in 2005 and growing. In 2006, identity fraud cost the UK economy an estimated £1.72bn a year. It is also reported that financial institutions spent an estimated US$700m to US$1bn on anti-fraud technology in that same year. These numbers bring to stark focus the size of the problem the industry is facing and the costs it has to incur to combat it. What adds to the complexity is the many dimensions of fraud, as you can see in Figure 1.

Fraud is a global problem and the Asia-Pacific region suffers from its impact as much, if not more, than other regions. A glance at the comparative figures published by the global economic survey in 2007 show that the problem in Asia-Pacific is more or less similar to the global trends, which goes to show that fraud and financial crime is a global menace. Analysts, however, believe that the impact is likely to grow in Asia-Pacific at a faster rate due to the relatively lower level of fraud prevention technology adaptation.

Regulators across the globe are cognisant of the magnitude of the problem and are responding with regulations and guidelines increasingly requiring tougher fraud prevention measures. Given the backdrop and the increasing complexity and overlap of fraud patterns across channels it is clear that any attempt to tackle the ‘fraud’ problem of the financial services industry in a siloed fashion will be costly and ineffective. A single, integrated enterprise view across accounts, customers, business lines and multiple touch points is required.

Figure 1: The Multiple Points of Contact Where a Financial Institution May Face Fraud

Figure 2: Fraud Comparisons Between Asia-Pacific and Globally

Source: Global Economic Crime Survey 2007

A Holistic Approach to Tackling Fraud

What lends credence to the case for a holistic approach to fraud management is the increased professionalism of fraud rings, more complex cross-channel fraud schemes, and increased employee/insider fraud, to name a few. The need, therefore, is for an enterprise initiative that will leverage the existing fraud solutions and correlates alerts across them; supplements existing monitoring with deep, sophisticated behaviour detection logic that will enable detection of complex fraud schemes across business lines and channels, thus providing a unified view of fraud risks across the organisation. This realisation is fast catching up, something that was noted in a recent Aite Group survey. Over 70% of a panel that Aite Group surveyed mentioned the need for processing consolidation, such as the running of an enterprise-wide fraud management platform.

The key areas that organisations need to consider while planning an enterprise or cross-channel approach are a unified and functionally comprehensive data model, scenarios and risk models that detect more complex longer-running fraud schemes, and intelligently focusing on the most urgent and actionable alerts or events to prevent and reduce losses through strong case management capabilities.

The benefits of an enterprise approach to fraud prevention are multifold but the most vital is the fact that it helps understand the full impact of financial crime across the organisation and thereby helps tackle it effectively and early. This, in return, helps minimise fraud, improve customer confidence and, above all, protect against reputation risk.

The total cost of fraud and corruption largely exceeds the direct financial losses, and the collateral damage to reputation is often more important for the institution than the actual fraud itself. Fighting financial crime in an integrated, holistic way arms organisations to meet and mitigate this threat through early detection and prevention of cross-channel fraud.

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