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Enterprise fraud risk management in the finance industry

Susceptibility to fraud and financial crime is inherent in automation and digitalisation, and increased online transaction volumes and massive financial networks across numerous global locations only make risk and fraud management harder.

Cybercrime and malicious hacking have grown over the past few years. Banks are constantly exposed to external threats and internal mismanagement in various ways. To combat these threats, banks and financial institutions (FIs) have heavily invested time and resources to combat fraud and financial crimes. Advanced software play a vital role in this process and oversee, recognise, and report fraudulent activity within financial institutions.

But the stakes are high. Fraud management in the finance industry costs, data privacy breaches, and damage to brand reputation all demand that financial enterprises stay ahead in the fight to monitor suspicious activities in real time, establish transparent reporting capabilities, and track compliance and audit goals.

Challenges in countering enterprise fraud


Of all the industries, cybercrime affects the financial sector the most. An article in Forbes states that more than 25% of all malware attacks targeted banks and financial institutions. Cyberattacks are constantly evolving and present multiple threats to banking institutions as well as their customers. New attack vectors take advantage of banks’ and customers’ dependencies on internet-based banking and other online financial activities.

Data breaches will only increase the types and instances of cyberattack vectors, and financial firms must prepare defenses, with the awareness that malicious actors may already possess their customers’ data. Without a robust and evolving cybersecurity management system in place, preventing new threats and tracking down those responsible for criminal actions can become increasingly difficult.

Financial misconduct and AML laws

Banks and financial institutions need to stay updated about changes in anti-money laundering (AML) laws in multiple countries or risk getting mired in unwanted controversies, which would result in expensive legal implications and negative brand perception.

For instance, in the UK, banks, accountants, service providers, and other related parties are expected to not only report suspicious money laundering as per Prevention of Crime Act (POCA) 2002 but also follow preventative measures under the Money Laundering Regulations (MLR) 2017. Even management consultants outside the regulated anti-money laundering sector can come under scrutiny and must be aware of arrangements with clients that amount to facilitating criminal misconduct.

Modification of statutory definitions of criminal offenses are needed, but the impact of such changes on the mainstream regulated financial sector is difficult to measure. Timely, expert consultation will be key in avoiding AML non-compliance and penalisation.

New banking models

Introducing new banking arrangements, like crowdfunding, initial coin offerings (ICO), peer-to-peer lending, and other forms of alternative finance, will increase the opportunities available for fraudsters. Distinguishing between authorised and unauthorised businesses will become an arduous task for banks and financial institutions.

Complexities in regulation

The regulator’s responsibilities, both to validate the integrity of the new products and to police them when they are introduced into the market, will become nearly impossible. At the same time, the level of financial complexities is still a mystery to a majority of the population, which will create readymade opportunities for fraudsters to strike.

The need of the hour is a new and robust set of regulations for equity crowdfunding (ECF) and other alternative financial transactions. Policymakers need to set regulatory benchmarks that can make the sector scale with safety. However, this depends on innovation, global support, and a strong knowledge base that can be established by major financial institutions and service partners.

Industry trends in bank fraud detection and prevention

Banks and financial institutions need to move away from standalone fraud detection and prevention systems and adopt enterprise-wide predictive risk assessment frameworks.
Here are some emerging trends that can drive next-gen strategies to fraud detection and prevention:

Data harnessing and advanced analytics

FIs can use centralised data repositories to store customer accounts and transaction data from multiple channels and production systems as well as external sources. Banks are already using high-performance computing technologies to analyse massive portions of data in real time and create detailed customer profiles. This makes for organised data that can be used for investigation of money laundering and fraud as well as for surveillance purposes.

Cloud-based detection and authentication

While cloud-based banking is yet to see high levels of adoption in financial institutions and banks, fraud detection platforms are increasingly becoming cloud based. Cloud deployments bring the advantages of automatic upgrades, flexibility, reduced capital expenses, and scale capabilities as per demand. While executives may be hesitant to send customer information to the public cloud, instances of cloud platforms with security measures superior to on-premise systems show that the benefits can outweigh the concerns.

Real-time fraud identification solutions

Time is of essence in online financial fraud. Financial institutions need to use fraud solutions powered by machine learning (ML), artificial intelligence (AI), and real-time transactional data analysis to identify potential criminal activity. Banks must regularly take an in-depth look at internal and external data for real-time fraud identification. Entity analytics and graph visualisation strategies are also being used to find underlying patterns and irregularities in existing data.

Predictive fraud models

Rule-based fraud identification can be improved by combining sophisticated predictive fraud models and analysis of massive data sets. To make models more accurate and improve fraud detection, analytic techniques such as pattern analysis to identify anomalous behaviour and link analysis to scrutinise hidden frauds are being used.

Enterprise case management

By leveraging enterprise case management, banks are making investigation workflows more efficient. Banks and financial institutions are also battling fraud by using data visualisation tools for faster decision making and robotic automation for optimal business processes.

Next-generation authentication mechanisms

Banks need to verify customer identities while delivering on high CX expectations seamlessly. Techniques such as voice and speech recognition and desktop analytics are helping banking services prevent fraud. While outsourcing customer service, partnering with experienced vendors that have innovative, secure authentication tools and processes in place can drive process efficiency and time savings while ensuring customer experience is not affected.

Introducing next-generation enterprise fraud solutions will deliver diverse benefits, including reduced total cost of ownership, improved staff productivity, visibility into fraud exposure, as well as assist companies in protecting brand reputation.
Since fraudsters will always find new ways to commit fraud, companies need future-ready fraud prevention solutions as part of their financial crime compliance program. Some key capabilities of such solutions will include functional ease, technological superiority, and market potential. Banks also need to ensure adequate internal supervisory procedures and systems to regulate fraud, without hindering customer experience.

When considering fraud management in finance industry, banks must adopt an evaluation process that assesses demonstrations from vendors based on operational, domain, and technical requirements to identify the right partner for financial fraud and risk management programs.