Fraudsters stole £580million through unauthorised and authorised fraud in the first half of 2023, a two per cent decrease compared to the first half of 2022. As fraudsters continue to prosper, what preventative actions can financial institutions really take?
New data from the UK Finance half-year fraud report, which reveals the amount its members reported as stolen through fraud and scams in the first half of 2023, highlights the fact that fraudsters continue to have an edge on financial institutions.
Despite the fact that banks prevented a further £651million of unauthorised fraud from being stolen through advanced security systems, the very slight two per cent year-on-year decrease highlights that, if anything, they are far away from making up significant ground on money lost to fraud.
Ben Donaldson, managing director of economic crime at UK Finance, explained where fraudsters are seeing the most success: “As the report shows, criminals are increasingly using social media, online platforms, texts, phone calls and emails to deceive victims into giving up their personal details and their money.
“The only way we will prevent fraud is if other sectors do much more to help us deal with the criminality which is increasingly taking place on their platforms.”
The need for cross-sector collaboration is clear, as Alia Mahmud, regulatory affairs practice lead at regtech firm ComplyAdvantage, explains: “Banks and payment processors are partnering with fintechs to use the power of AI and machine learning to identify fraud in an ever-changing landscape, but they can’t be in this fight alone.
“More than 75 per cent of the fraud cited in today’s report came from online sources, so technology companies need to step up and help shore up the bulwark protecting consumers.”
As fraud remains such a pertinent issue that shows no real signs of slowing down, we also reach out to a range of industry experts to get their take.
“The fight against these criminal gangs is a collective responsibility”
As Martin Cheek, managing director of SmartSearch, explains, the solution lies in a combination of collaboration and technology: “The report highlights the effectiveness of advanced security systems that have prevented an additional £651million in unauthorised fraud. This is a testament to the financial services sector’s ongoing efforts to protect its customers – but it is clear that there is more work to be done.
“The staggering 77 per cent of APP fraud originating online, underscores an urgent need for robust digital countermeasures. The digital landscape is a nefarious and fertile ground for criminal gangs, and firms must be vigilant in safeguarding their reputations.
“As the report correctly points out, the financial services sector is at the forefront of anti-fraud efforts, with established collaborations with other sectors, the government, and law enforcement. That said, the fight against these criminal gangs is a collective responsibility that extends to all regulated firms.
“Technology is playing an increasingly vital role in preventing these crimes and the money laundering that is an inevitable consequence of them. Regulated firms must continue to invest in electronic verification to help protect their customers from fraud – and themselves from the fines and reputational damage which come from anti-money laundering breaches.”
“Prioritising prevention and detection”
Emma Lovell, CEO of the Lending Standards Board, also shared her thoughts on UK Finance’s findings: “These figures show that fraud levels remain worryingly high, indicating fraudsters still pose a significant threat to society and are becoming more sophisticated by the day. With criminals increasingly leaning on social media and online platforms to drain victims’ bank accounts, all sectors must double down on efforts to protect customers.
“As well as the financial repercussions, scam victims often suffer devastating emotional distress – feelings that cannot be expunged through reimbursement. While reimbursement is part of the picture, we mustn’t lose focus on the preventative measures that avoid the negative impact on customers – while halting the funding of these criminal enterprises.
“The Contingent Reimbursement Model Code (CRM Code) exists to ensure signatory firms safeguard their customers with procedures to detect, prevent, as well as respond to APP scams. Prioritising prevention and detection in the battle against APP fraud has never been more pressing.
“The industry should rally behind the need to retain the safeguards delivered by the CRM Code beyond reimbursement alone. Upholding an industry code will ensure that firms maintain their commitment to the consistent implementation of measures to prevent fraudulent activities at the forefront. A collaborative approach, from understanding the scale of the issue to maintaining a united front against fraud, is pivotal to our collective efforts in tackling this scourge on society.”
“Financial scams are like the multiple-headed hydra”
According to the online investment platform, interactive investor, eight per cent of consumers in the UK have lost money to a financial scam in the past three years. Against most people’s expectations, younger people emerged as the most likely to be victims, with 15 per cent of respondents aged 40 or under losing money during that period.
Myron Jobson, senior personal finance analyst at interactive investor, also explained: “The latest UK Finance figures show that the battle against the scourge of financial scams is hard-fought, with the amount lost through financial scams falling relatively modestly on a year-on-year basis.
“Financial scams are like the multiple-headed hydra from Greek mythology, where every time one scam is exposed, many more emerge in its wake. Recent history has seen the evolution of cons, notable impersonation and romance scams, which have a significant financial and emotional toll on victims. The internet continues to be a rich trolling ground for unscrupulous individuals to convince unsuspecting victims to part with their hard-earned money. Fraudsters are only too willing to exploit any ignorance or naivety.”