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As financial transactions through enhanced means of technology increase, the instances of financial frauds have also seen a rise. According to an IIM study, Public Sector Banks in India lost at least Rs 22,743 crore owing to fraudulent banking activities between 2012 and 2016. Low risk perception, differences in national legislations and high profits associated with fraud make it a very attractive activity for organised criminal groups.
Although, technology has become the biggest driver of change but new technologies adopted by financial institutions are making them increasingly vulnerable to various risks such as phishing, card skimming, vishing, SMSishing, social engineering, website cloning and cyber stalking.
Implications of such trends :-
1.Money laundering and siphoning of funds: Using information technology as a platform for laundering and placement of unaccounted money. 2.Identity theft: Employing hostile software programs, malware attacks, phishing, SMSishing and whaling (phishing targeting high net worth individuals) for identity theft and stealing confidential data. 3.Disrupts and de-legitimise digital initiatives such as BHIM payment, Digital Locker, E-signature etc. 4.Capital markets: Growing dependency of security exchanges on internet-based (IP) platforms has made them increasingly susceptible to cyber frauds. 5.Terrorist financing: Anti-social elements may exploit the vulnerabilities in financial systems that allow for an inappropriate level of anonymity and non-transparency in the execution of financial transactions. 6.Destablise economy: Huge losses associated with high-level financial fraud undermine social-security systems and destabilise economic systems.
Sound fraud management framework :-
1.Redefining the role of regulators :
a)Banking: Banks need to incorporate a greater level of scrutiny, by deploying advanced tools and technology capable of protecting the customers against unethical activities. b)Insurance: Insurance Fraud Monitoring Framework (IFMF) mandates for the insurance companies to set up a risk management committee and insurance fraud repositories.
2.Streamlining whisteblowing: To establish a vigilance mechanism for directors and employees to report genuine concerns so as to prevent collusion for occurrence of financial frauds as per Companies Act. 3.Inter-agency coordination: RBI and other economic intelligence agencies should share summary of its financial inspection reports with other agencies on more regular basis. 4.Data visualisation tools: These should be used to provide a visual representation of complex data patterns and outliers to translate multidimensional data into meaningful pictures or graphics. In this regard, CBI is developing a Bank Case Information System (BCIS) to curb banking frauds. 5.Behavioural analytics: Data analytics should be implemented by the institutions to understand customer behaviour and preferences for detection of fraudulent activity either in real-time or post mortem.
With the upcoming trend of branchless banking, connectivity is going to be the backbone of digital banking. Recognizing this, along with internal controls, there is a need to educate the customers as well. Also, financial institutions must look at existing security controls with a new approach and risk appetite.
By: Harman Sandhu ProfileResourcesReport error
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