Deloitte survey; Banking, Financial Institutions Struggling To Deal With Increasing Fraud Incidents

In the wake of COVID-19 and new digital operations, banking and financial institutions have been struggling to deal with an increasing number of fraud incidents and the trend is expected to continue, a Deloitte India survey said on Monday. Key reasons identified for the increase in fraud incidents over the next two years include large-scale remote working models, increase in customers using non-branch banking channels and the limited/ineffective use of forensic analytics tools to identify potential red flags, Deloitte Touche Tohmatsu India LLP (DTTL) said in a release.

About the survey, Deloitte said it gathered the views of 70 key C-suite stakeholders/ senior management responsible for compliance and fraud risk management, audit/ finance, asset recovery from varied financial institutions based in India. Banks and financial institutions which participated in the survey included private, public, foreign, co-operative and regional rural banks in India.

"In the wake of COVID-19 and new digital operations, banking and financial institutions have been struggling to deal with an increasing number of fraud incidents," the Deloitte India Banking Fraud Survey said, adding "this trend is expected to continue, with 78 per cent respondents stating that frauds could increase over the next two years".

As per the survey findings, retail banking was identified as a major contributor to fraud incidents, with 53 per cent of respondents indicating that they had experienced more than 100 fraud incidents (over the last two years) - a 29 per cent rise since the previous edition. Similarly, the non-retail segment saw an average of 20 fraud incidents, highlighted by 56 per cent of survey respondents - again, a 22 per cent rise.

"Additionally, data theft, cybercrime, third-party-induced fraud, bribery and corruption, and fraudulent documentation have been identified as the top five concerns with over 42 per cent of respondents (cumulative) reporting to be victims of these," the release said. Survey respondents indicated that the top three outcomes of COVID-19 on their Fraud Risk Management (FRM) function would be increased dependence on analytical tools for fraud monitoring and detection (25 per cent), the need to create awareness about fraud amongst customers and employees (23 per cent), and a change in the target operating model to enhance capabilities of the remote FRM function (21 per cent).

Speaking on the launch of the survey findings KV Karthik, Partner, Financial Advisory, Deloitte India, said the impact of the pandemic has resulted in institutions across the globe operating in an entirely new environment. "Increase in the use of digital channels for transactions by customers, on one hand, has contributed to the ease and speed of transactions. On the other, with evolving and complex business models and increased use of technology, existing fraud risk management frameworks have been introduced to newer and more complex challenges," he said.

Nishkam Ojha, Partner, Deloitte India, opined that the pandemic has forced banks to enact significant organisational and operational changes within a short timeframe to avoid service interruptions. "With myriad changes being deployed at the front end but processes and systems possibly remaining untouched, it begets the question - have all such changes been assessed for their vulnerability to fraud," he added. Only half of the survey respondents indicated that they conduct fraud risk assessments and update their fraud risk register once a year.

With fraud risks such as loan frauds (24 per cent), mobile/internet banking frauds (14 per cent), identity/data theft (13 per cent), and phishing (9 per cent) being identified as the top four biggest concerns facing banks currently, the frequency of fraud risk assessment is severely wanting. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (DTTL), its network of member firms, and their related entities.

(PTI)