According to The Financial Express, Deloitte's recent research study shows that retail banking has been identified as one of the leading causes of fraud cases. Banks and financial institutions have been struggling to deal with the continuous increase in fraud cases due to the pandemic and the new digital operations, according to the study conducted by Deloitte India. Additionally, further projected increases in fraud cases over the next two years are expected due to large-scale remote working models, an increase in customers using non-branch banking channels, and limited forensic analytics tools to identify potential danger signals, stated the Deloitte Touche Tohmatsu India LLP (DTTL) press release.

The survey included responses from seventy key C-suite stakeholders / senior executives responsible for compliance and fraud risk management, auditing / finance, and asset recovery from various Indian-based financial institutions. Banks and financial institutions that participated in the survey included private, public, foreign, co-operative and local regional banks in India.

The research identified retail banking as the number one cause of fraud, with 53% of respondents saying they have experienced more than a hundred fraud cases in the last two years. Similarly, an average of twenty fraud cases occurred in the non-retail sector, which was emphasized by 56% of survey respondents. In addition, more than 42% of respondents were victims to data theft, cybercrime, third-party fraud, bribery, corruption and fraudulent documents. These crimes were identified as the top five concerns according to the press release.

Below are the survey respondents’ top three impacts from the pandemic on their fraud risk management (FRM) function:

• An increased reliance on analytical tools for fraud monitoring and detection (25%)
• The need to raise customer and employee awareness on fraud (23%)
• Revisions needed in main operating model to improve the functionality of the remote FRM function (21%)

KV Karthik, Partner, Financial Advisory, Deloitte India, commented that financial institutions across the globe now operate in a whole new environment due to the impact of the pandemic. He further added that the increased use of digital channels for transactions by customers has helped simplify and speed up transactions. However, this also brings new and more complex challenges to existing frameworks for fraud risk management as the evolving and complex business models and technologies continue to increase.

According to the survey, only 50% of the respondents said they perform fraud risk assessments and renew their fraud risk registration yearly. The top four issues banks face are loan fraud (24%), mobile / internet banking fraud (14%), ID / data theft (13%) and phishing (9%). The rate of fraud risk assessments requires more regularity to minimize fraudulent activities.

Below are the top three actions banks have taken (in the last six months) to combat fraud along with key factors important to survey respondents:

• Optimize Early Warning Signals (EWS) and fraud monitoring systems by using AI / ML and integrated external databases (23%)
• Improve case management solutions for effective response / reporting of fraud incidents (18%)
• Organize training / workshops to educate staff involved in fraud monitoring functions (17%)

With the constant increase in transaction volume, changing consumer behaviour patterns, and new emerging risks, detecting warning signals with traditional rule-based solutions has become outdated. Nishkam Ojha, partner, Deloitte India, commented that the pandemic forced banks to make significant organizational and operational changes in a short period of time to avoid business disruptions. Additionally, countless changes have been made to the front end, but the processes and systems may have remained the same, raising the question of whether all these changes have been checked for potential fraud risk.

Ojha further added that in the event of new fraud risks, financial institutions must be vigilant to continue to effectively mitigate those risks by focusing on a dynamic and intelligent approach. Research into the use of technology will help banks detect and prevent fraud.

Other important key highlights illustrated from the survey are:

• Stressed assets (factors leading to higher stressed assets suggesting banks may need to perform due-diligence and monitor their frameworks):
  • Limited asset monitoring after disbursement (38%)
  • The economic slowdown (24%)
  • Insufficient due diligence prior to disbursement (21%)
• Conducting in-house forensic audits remains challenging. Survey respondents indicated that the top four challenges faced by banks in performing an in-house forensic audit include:
  • Technological limitations to read and analyse the borrower’s accounting records (26%)
  • Lack of data analytics capabilities (21%)
  • Lack of requisite skill sets (20%)
  • Lack of a dedicated team (17%)
• Synergy across tools and deploying technology (AI/ML) are key to achieving an enhanced FRM function. Survey respondents highlighted these areas:
  • KYC/anti-money laundering (21%)
  • Fraud risk assessment (17%)
  • Fraud detection (15%) would benefit from deploying AI/ML technology
  • Challenges in effectively implementing EWS/ EFRMS, including the lack of data integrity due to siloed systems making it difficult to identify risks (21%)
  • Inadequate data being captured in the system (21%)

An integrated approach to identify anomalies and fraud signals along with continuous monitoring is needed by banks to perform effectively. Advanced technologies such as AI / ML can be used to analyse large amounts of data, eliminate false positives and identify connections and patterns that are too complex to be captured by simple rule-based monitoring or by the human eye. Enhancements to technology and bank processes will enable financial institutions to respond more efficiently and quickly and be more resilient to future economic crises.