How Global Financial Industry Can Fight Back Against Fraud

Every organization is subject to fraud risks. It doesn’t matter whether the threat is internal or external, the consequences from fraud activities can result in the downfall of companies, loss of public interest in financial markets and billionaires like Dmitry Rybolovlev, increased regulations, and even incarceration for executives involved.

After the world was hit by the 2008 financial crisis that had threatened to collapse the global financial market, banks and financial institutions decided to devote much of their focus on how to manage fraud risks. Unfortunately, 10 years after that horrid incident shows that the financial services market has made relatively poor efforts in improving or fortifying their risk management strategies. 

A study by the North Carolina State University that focused on the adoption of enterprise risk management across a number of industries found that only 34% of financial service companies possess “mature” or “robust” enterprise risk management oversight. That is certainly an alarming study, especially when you realize that the US financial system was responsible for the 2008 crisis. 

That’s why banks and financial institutions have to embrace risk management strategies to lower the risks of fraud in terms of both frequency and severity. Since global fraud stealing is now at an estimate of $4.1 trillion annually, the time to fight back against fraud is now. Robust risk management and infrastructure and reporting will help financial institutions around the world as well as decrease the severe systemic impact of fraud within our global financial systems.

How Global Financial Industry Can Fight Back Against Fraud

• Create Tone At The Top

In order for a fraud risk management program to be successful, a tone at the top has to be established, which showcases a deep commitment to combating fraud at all levels of the organization. Banks and financial institutions can possibly establish a strong risk culture within the organization without the board’s commitment. The board also has a responsibility to that management designs an effective fraud risk management documentation to encourage ethical behavior by employees, vendors, and customers. With the board being committed to fraud risk management, the necessary resources can be allocated to fraud identification and prevention measures across all banking channels. 

• Use Assessment To Create Fraud Awareness

The Association of Certified Fraud Examiners (ACFE) says that the foundations an effective fraud risk management program are rooted in risk assessments - that is overseen by the board - which determines areas where fraud may occur within the organization. Fraud risk assessments have to be conducted on consistent and methodical bases to ensure present or emerging fraud risks are being assessed on a frequent basis. 

With the presence of a strong fraud risk assessment process and board commitment, would-be criminals can be deterred from attempting to engage in fraudulent activities against banks and financial institutions. One essential of having a strong fraud risk assessment is having open communication channels where everyone in the organization can report fraud risks whether they’re within or outside an organization. In truth, every employee plays an active role in fraud risk assessment. 

• Fraud Prevention

Smart risk assessments provide us a road-map for fraud prevention strategies to be implemented in order to deter fraudulent activity and promote a risk-aware culture throughout the organization. Fraud prevention strategies have to be tailored to the risks that they are mitigating as a standard approach towards fraud prevention is not sustainable enough for banks and financial institutions. As soon as fraud prevention techniques are implemented, continued monitoring is required to gather data on the effectiveness of said techniques. Consistent monitoring, as well as communication of fraud prevention performance, is crucial to optimize fraud prevention techniques. If the fraud prevention techniques are shown to be ineffective, they can be revised to ensure that they are mitigating fraud as optimally as possible.