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Fraud and AML detection challenged by changing lifestyles and home working – report

  • 08/04/2021
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Fraud and AML detection challenged by changing lifestyles and home working – report
Home working and a dramatic shift in consumer behaviour over the pandemic has created challenges for the UK’s banks in spotting financial crime, according to a report by FICO.


However, it appears instances of fraud and money laundering were not greatly impacted by the health crisis.

According to the study, the shift in consumer lifestyles over the last year meant banks’ systems and teams were flagging more potentially risky transactions than normal that were in fact legitimate and action by the account holder.

“Thus, while fraud attack volume did not increase uniformly across the sector, most institutions ended up with a higher investigation burden regardless,” the report said.


Fraud flags falsely triggerd

The study was conducted by Omdia and quizzed 110 senior executives responsible for overseeing financial crime compliance at banks around the world, with 14 coming from the UK.

Perhaps unsurprisingly, given the sudden nature of the change, 79 percent of UK respondents said remote working had a high or major impact on the effectiveness of their financial crime prevention.

But more surprisingly, more than 70 per cent of UK institutions had seen no notable change in fraud attacks since the pandemic.

Globally, 69 per cent of respondents said the number of transactions falsely identified as potential financial crime had worsened with this being particularly so in the UK and Germany.

“A key challenge for many institutions is that the significant change in consumer behaviour from lockdowns (e.g., dramatic shift in shopping behaviour from physical to online site or stockpiling in some markets) has often resulted in existing fraud rules and detection systems wrongly identifying legitimate behaviour as suspected fraud, as changed actions appeared unusual compared to historic patterns,” the report added.


Tighter regulation

FICO noted that a compounding factor throughout the pandemic had been greater emphasis on stopping financial crime and protecting consumers.

“Governments and regulators have generally enhanced consumer protection demands since the pandemic, creating increased pressure on institutions to rapidly redress financial fraud, regardless of higher workload volumes and employee workforce challenges,” it said.

And it added: “While the pandemic has created new opportunities for financial criminals, for most banks this has seemed to drive higher volumes of existing fraudulent attempts, rather a dramatic change to new types of fraud.

“Again, the impact of new fraud resulting from the pandemic seems to be stronger on the fraud over anti-money laundering (AML) compliance side, with a third of fraud executives flagging [this] as a strong pandemic impact compared to just over a sixth of compliance ones.”

And the report highlighted that organisational structures could be a problem with 64 per cent of UK respondents saying that fraud prevention and AML software reporting teams do not report to the same person at the bank.

“Just as the pandemic put huge stresses on the healthcare system, it put huge stresses on fraud and financial crime management teams,” said Toby Carlin, senior director for fraud consulting at FICO.

“Teams that collaborate in person and work with large software systems that have restricted access found that working from home hurt their productivity. This was compounded as the volume of fraud attacks rose.”




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