The figures from other sources add considerable weight to that analysis, with KPMG’s Global Fraud Report in June finding financial services fraud had accelerated through the headline-grabbing £1bn mark.
A shocking figure, but what does it actually mean for lenders?
Damage to their balance sheets, certainly, as well as their reputations, but perhaps an overlooked aspect of fraud is its impact on customers.
If lenders are weak on fraud, they are failing to meet their Treating Customers Fairly (TCF) obligations.
Fraud is often dubbed a victimless crime or at least it is perceived to be a crime that affects businesses, rather than consumers.
But high levels of fraud often mean increased costs for the customer.
KPMG’s report said the average cost of fraud in the private sector has jumped from £2.5m per case in June 2010 to £4.2m in June 2011.
If lenders’ balance sheets are hit by fraud, the logical step is to hike up costs on the customer, whether that be higher mortgage rates or more expensive car insurance.
TCF can also be damaged when lenders fail to spot outsourced third parties acting fraudulently and underperforming on service to the customer.
Lenders will be concerned, particularly in light of the FSA recently announcing plans to turn its TCF guidelines into rules.
Agile web-based technology really can help lenders identify trends leading to potential fraud and address them. Web-based systems return high quality, easily accessible data to lenders on all third-party suppliers’ activities.
Consistent, single-source management information enables any fraudulent trends to be identified at the earliest possible time. This also provides a clear, transparent – and not to mention essential – audit trail.
Having systems from multiple sources is inefficient and spotting trends requires individual vigilance – hardly a defendable position if a loss has been made.
By tightening up their anti-fraud provisions and internal controls, lenders can demonstrate to the FSA they are running their businesses under an ethos of greater commitment to meeting TCF principles.
Prevention of fraud is not just a case of businesses protecting their balance sheets and reputations. It also has the interests of the customer at its very heart.
Mark Blackwell is managing director of xit2
