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What More Can Mission-driven Banks Do To Tackle Financial Crime?

Image courtesy: Anna Nekrashevich on Pexels

A recent survey by the National Center for Public Opinion Surveys under the King Abdulaziz Center for National Dialogue revealed that 62% of Saudis are exposed to attempts of financial fraud. About 28% of those who were exposed to financial fraud attempts said that there was a relationship between the financial fraud attempt they had been exposed to and a previous activity they had done. Source – Saudi Gazette

This is a loud wake-up call and the problem of financial crime is not restricted to Saudi Arabian banks alone. Any bank that is exposed to the global $4 trillion problem of fraud (ACFE Report to the Nations) is vulnerable to transactional fraud threats and money laundering attempts.
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The time is now: Convergence of real-time Enterprise Fraud Management and real-time AML into a singular platform working as one

Real-time payments need to be backed up with real-time fraud and anti-money laundering measures. Rivi Varghese, CEO, Clari5 (CustomerXPs) explains why financial institutions may adopt a FRAML approach to minimize financial crime and improve risk management and operating efficiencies. Read the complete interview in IBSi FinTech Journal. Read More

Anatomy of a Financial Crime: How Insider Fraud Works

What is Financial Crime?

For the last 30 years, financial crime has been a significant challenge for governments, banks and other financial institutions. A huge threat to the development of economies and their stability, financial crime includes two types of conduct. Firstly, activities conducted to dishonestly generate wealth. Secondly, activities which protect the wealth already obtained or facilitate acquiring it. Even as financial institutions and regulators develop new strategies to detect and prevent financial crime, fraudsters employ more advanced techniques to commit fraud and evade legal scrutiny. Financial compliance is a major instrument in the fight against fraud. Cost of compliance in the financial sector alone is around $180.9 bn per year globally.

The main types of financial crime are as follows, although the two most crucial are money laundering and the financing of terrorism.

  • Fraud
  • Electronic crime
  • Money laundering
  • Terrorist financing
  • Bribery and corruption
  • Market abuse and insider dealing
  • Information security

Notable organizations dedicated to prevent money laundering and terrorist financing are:

  • Financial Crimes Enforcement Network (FINCEN) – US
  • Financial Conduct Authority (FCA) – UK
  • Federal Financial Supervisory Authority (BaFin) – Germany
  • Financial Markets Regulator (AMF) – France

Impact of Financial Crime on Banks

UNODC estimates the annual cost of money laundering and associated crimes between US$ 1.4 trillion and US$ 3.5 trillion, not including the broader financial and reputational implications.

Three major threats associated with financial crime are:

Individual fines, forced resignation, bans on operating in the industry and even criminal charges, could also be imposed on senior managers who gloss over AFC compliance.

Who Commits Financial Crime?

People who commit financial crime can be divided into seven groups:

  • Organized criminals including terrorist groups
  • Corrupt heads of state who loot the coffers of their countries
  • Business leaders or senior executives who misrepresent financial data
  • Employees of any level who steal company funds
  • A customer, supplier, contractor, or any outsider with no connection to the company may commit fraud
  • External fraudster colluding with an employee
  • Serial or opportunist fraudsters who succeeded in taking their spoils

Trends

Trends driving financial crime management in banks are:

  • Greater and more coordinated regulation
  • Operational structures of a company are not in agreement with the fast-moving financial crime landscape
  • Pressure to adopt enterprise-wide frameworks
  • Absence of a change management process to move to a centralized approach
  • Cybercrime and AML are the biggest concerns
  • Analytics is crucial for effectiveness

What is Insider Fraud?

In financial services, fraud threats are both domestic and international. Increasingly, internal and external fraudsters are colluding to commit significant fraudulent acts. Insider fraud occurs when employees misuse their position for personal gain by exploiting personal information or confidential data. Fraudulent activities are usually committed by the employees of the bank leading to revenue leakages and financial loss. These include activities done by the employee alone or in collusion with third-party fraudsters. Frauds committed by bank employees are a major global problem. In its 2020 Report to the Nations, ACFE assessed 2,504 cases of internal fraud from 125 countries, which led to an estimated loss of $3.6bn. Banking and financial services had the largest share of internal fraud cases with 15.4% of the total.

The key types of insider fraud are:

  • GL Fraud
  • Identity Theft
  • Account Takeover (ATO)
  • Transaction Reversal by Tellers
  • Account Manipulation
  • Hiding Losses
  • Four Eyes Violation in Private Banking
  • Collusion
  • Abuse of Administrator Privileges

Profile of an Internal Fraudster

Research done by several organizations reveal the typical profile of an internal fraudster. It has been found that internal fraudsters had privileged access to information systems and customers’ personally identifiable information (PII) based on their role or level of experience. They exploited vulnerabilities in processes they were familiar with to access money or customer data. Most of them committed these frauds purely for financial gain, as some were under financial stress from a gambling problem or family distress.

Tenure Internal fraudsters who are at least 6 years old in their organizations caused twice the loss of less-tenured employees.

Gender Males committed more frauds and caused higher losses. According to the report 72% of frauds were committed by men.

Education 64% of internal fraudsters had a university degree or higher.

Age Losses sustained due to older fraudsters is much higher.

Level of Authority Though most internal frauds are committed by employee level/ manager level personnel, frauds committed by owners/ executives are much more harmful.

Motivation One research study found that the main reasons for committing fraud in descending order of frequency are:

  • For personal financial gain and greed
  • Because I can
  • Organizational culture driven
  • Wanting to meet targets/ hide losses to receive bonus
  • Wanting to meet budgets/ hide losses to retain job

Impact of Insider Fraud on Banks and Financial Institutions

Insider fraud can occur in many industries, though it afflicts the financial services industry the most. The typical organization loses 5% of its revenue in any given year as a result of internal fraud. Impact of insider fraud can be felt on financial institutions in the following ways:

  • Financial loss and loss in staffing and other assets
  • Damage of reputation and brand
  • Negative organizational culture
  • Damage to the relationship between the financial institution and its partners and stakeholders
  • Disruption to service delivery
  • Investigation costs and issues arising due to recruitment, retention and morale

Sources

 

Mashreq Bank and Clari5 win ‘The Asian Banker’s MEA Risk Management Award’

The Asian Banker Risk Management Awards is a programme designed to identify emerging best practices and outstanding achievements by the best run Risk Management teams in financial institutions across the region. Mashreq & Clari5 won The Asian Banker MEA Risk Management Award 2021 in ‘Fraud Prevention Technology Implementation of the Year in the United Arab Emirates’.

About The Asian Banker and TAB’s MEA Risk Management Award

Since 1996, The Asian Banker has been a leading provider of strategic intelligence on the financial services industry.

The Asian Banker Financial Technology Innovation Awards Programme is regarded as one of the undisputed benchmarks of the technology innovation in the region. The programme is designed to identify emerging best practices in technology implementations and innovations. Read More

Mashreq Bank and Clari5 win IBSI Global FinTech Innovation Award

The IBS Intelligence Global Fintech Innovation Award is a distinguished recognition of project excellence and winners are determined based on solution originality, project impact, program complexity, adaptability, governance, best practices and tools adopted. This year’s edition of the awards had global participation from 181 submissions, 123 banks across 48 countries and 30 award categories. Mashreq and Clari5 received the honors for the Most Impactful Project in the Best Risk Management Implementation category.

About IBSI and IBSI Global FinTech Innovation Award

Established in 1991, UK-headquartered IBS Intelligence is the world’s only pure-play Financial Technology (traditional and new-age) research, advisory, and media firm, with a global coverage, and a 360° portfolio of intelligence offerings.

For over 30 years, IBSI’s expert teams have delivered independent, in-depth, actionable insights, with a laser focus on everything Financial Technology, to the global banking, consulting, technology, and institutional investor world.

The third edition of the IBSI Global FinTech Innovation Awards identified and honoured technology players and banks for their excellence in driving impact through banking technology implementations and innovations using emerging technologies. Read More

January 2022 Issue

Mashreq Bank & Clari5 bags the acclaimed ‘IBS Intelligence Global FinTech Innovation Award 2021’

The IBS Intelligence Global Fintech Innovation Award is a distinguished recognition of project excellence and winners are determined based on solution originality, project impact, program complexity, adaptability, governance, best practices and tools adopted.

This year’s edition of the awards had global participation from 181 submissions, 123 banks across 48 countries and 30 award categories. Mashreq and Clari5 received the honours for the Most Impactful Project in the Best Risk Management Implementation category.

The Asian Banker Risk Management Awards is a programme designed to identify emerging best practices and outstanding achievements by the best run Risk Management teams in financial institutions across the region.

Mashreq & Clari5 has won The Asian Banker MEA Risk Management Award 2021 in ‘Fraud Prevention Technology Implementation of the Year in the United Arab Emirates’.

Why do so many Banking Enterprise Fraud Management Implementations fail to deliver? Top management pitfalls to avoid.

What can bank managements do, early on, to ensure that their EFRM implementations are in fact true EFRM implementations and don’t go back in time and stay siloed.

Chartis Research’s RiskTech100® 2022 report is the most comprehensive study of the world’s top 100 risk and compliance technology vendors that benchmarks the leading players on a range of risk technology specialties and qualities that qualify them to be among the world’s top 100 risk technology providers. Clari5 has once again been featured in this premier list.

Global Enterprise Connect Awards comes through as the benchmark for outstanding performances throughout the Middle East and Africa IT industry, where leading players in the ICT domain compete for the winning title. Clari5, awarded as the Top Vendor in Banking Solution category.

November 2021 Issue

One of the most coveted and prestigious title in the IT industry in the MEA region, GEC Awards 2021 celebrated the milestones of GCC ICT industry. Global Enterprise Connect Awards comes through as the benchmark for outstanding performances throughout the Middle East and Africa IT industry, where leading players in the ICT domain compete for the winning title. Clari5, awarded as the Top Vendor in Banking Solution category.

Clari5 partnered with TCS to showcase its category leading real-time financial crime management solution on TCS BaNCS Marketplace. TCS BaNCS provides comprehensive set of solutions across Banking, Insurance and Capital Markets. Clari5 Real-time Financial Crime Management solution is now available on TCS Bancs Marketplace.

Amongst all industries impacted by fraud, banking is undoubtedly the hardest-hit. While digitization and multi-channel banking have totally transformed the industry, the shift has also brought about an unprecedented rise in fraud.

Imagine an intelligent system that studies customers’ behavioral patterns to detect fraud, is also creating precise personas for the bank’s marketing teams to target campaigns to. The same real-time, context-aware logic/approach used to combat cross-channel fraud can also help enable intelligent, hyper-precise targeted and contextual customer engagements.