Tackling financial crime with real-time detection
November 19, 2017 | 6:46 PM
by Andrew Davies

After the Central Bank of Oman issued a draft circular early this year requiring banks to have a robust fraud prevention policy and system in place by the end of 2017, many banks revisited their fraud controls and policies. This included an assessment of the technology in place to help prevent financial crime, protect customers and reduce losses.

A common theme that has emerged from the assessments we have participated in with our bank clients in Oman is that the increasingly rapid pace of financial services is having a significant impact on fraud prevention, detection and mitigation.

In today’s highly connected world, fraud can perpetuate quickly. Payments fraud is becoming more advanced and widespread, with criminals frequently using multiple channels and payment methods to attack customer accounts. And real-time settlement introduces a greater fraud threat for customers of institutions, as well as the institutions themselves.

As a result, traditional methods of identifying suspicious activity are no longer adequately protecting financial institutions and their customers. To effectively combat fraud in our current environment, a holistic approach to fraud management is required. This approach is critical to detect and prevent ‘flash fraud’ threats, in which criminals identify a weakness in a system and initiate transactions before the loophole is closed.

Robust fraud prevention systems with configurable detection scenarios and scorecards enable financial institutions to rapidly respond to threats, fine tune their logic for “decline, hold or approve” strategies and therefore manage risk in real-time.

Real-time scoring

Institutions are investing in real-time scoring, case management and statistical models in order to tackle fraud, and remain compliant. Such tools enable financial institutions to decline the most suspicious transactions before loss is incurred. This is done by accurately scoring transactions for fraud risk across a full range of electronic and mobile payment channels.

“Most of the frauds are committed by online money transfer, credit cards and debit cards used through cash machines either in the country or abroad. Also, online transactions are another problem when people buy something or transfer money through the internet,” a police spokesman told a leading GCC newspaper in 2016.

Therefore, having the right financial crime prevention solutions are key to reducing and managing financial crime risk. By pulling together full customer profiles through effective Customer Due Diligence (CDD) and transaction monitoring, unusual behaviour that is indicative of money laundering, tax evasion, human trafficking and fraud can be identified early and more accurately.

Timing is everything

Recognising fraudulent behaviour before transactions are released means the financial institution has time to prevent it and reduce losses, while also protecting customers. Through the monitoring of transactions across any account, in any country, it is easier to identify suspicious activity for that particular customer.

Taking the information and evaluating it against what you know about the customer and leveraging best practices to accurately detect fraudulent activities, means the instance of fraud can be identified in real-time and stopped before losses occur.

Reputation on the line

As noted in the Central Bank of Oman Master Circular Draft issued on March 17, 2017, “Frauds, apart from exposing the vulnerability of banks' systems and processes, have other ramifications as well. Importantly, frauds are a threat to public trust in the banking system. Public trust, as will be appreciated, is fundamental to banking and hence has to be zealously guarded.”

Financial institutions have a reputation as trusted providers, and as such have a responsibility to maintain the highest standards of fraud prevention, detection and mitigation, even in the face of rapid market change. Once a reputation is lost, it cannot easily be regained, and financial institutions are well aware of the fact that it is their reputations on the line in the fight against financial crime.

*The writer is the Vice President, Global Market Strategy, Financial Crime Risk Management at Fiserv. With more than 25 years’ experience in financial services and risk management, he is responsible for working with Fiserv customers around the world to design and deploy effective financial crime risk management solutions.

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