Fraud: 2024 Outlook

2023 marked a critical year in the fight against fraud in the UK. New technology and fraud typologies have challenged financial institutions and their customers, with fraud being 41% of all crime against individuals in 2023. i From advanced cyber threats to innovative scams, the landscape of fraud has evolved to be more sophisticated. Meanwhile, the UK government and regulators have begun to implement a far more robust approach to combatting the most common type of crime in the UK. In this blog, Protiviti has examined how criminals are evolving and expanding their use of fraud and set out an overview of regulatory changes and how financial institutions should react to these changes in 2024.?

Failure to prevent fraud offence

The concept of 'failure to prevent fraud' corporate criminal liability, initially established in the UK Bribery Act 2010 and extended by the Criminal Finances Act 2017, is now being further developed in the Economic Crime and Corporate Transparency Act (ECCTA), which is due to come into effect in 2024. The offence holds organisations criminally liable for the misconduct of an 'associated person,' including employees, agents, subsidiaries, and those performing services on the organisation's behalf. Firms need to assess their current Fraud Risk Management framework to ensure that their mitigating controls are performing effectively. Organisations should anticipate that they may need to:?

• establish a high-level commitment to fraud prevention,??
• regularly assess and review risks,??
• implement anti-fraud policies supported by tailored training,??
• maintain reasonable financial and accounting controls,??
• enforce appropriate mechanisms in employment contracts,??
• include provisions with third parties addressing outward fraud, and
• adapt or adopt whistleblowing procedures covering fraud.

Authorised Push Payment (APP) Fraud: New Rules to Protect Victims?

The UK’s Payment Systems Regulator (PSR) ‘Fighting authorised push payment fraud: a new reimbursement requirement’ policy statement aims to address APP fraud, an online payment scam which manipulates victims into sending funds to imposters. ii The PSR is requiring banks and payment companies to offer enhanced protection and faster reimbursements for victims, including but not limited to consistent minimum standards, with most victims being reimbursed within five days. iii The PSR is currently consulting on the details of the new rules, including the amount of reimbursement customers can expect. Firms should expect a cultural shift in payment practices towards greater fraud prevention and faster reimbursements for victims.?

Money mules?

Financial institutions that fail to tackle money mules face severe consequences as the Financial Conduct Authority is expected to increase scrutiny and penalties of firms. The challenge for firms persists in how effortlessly fraudsters withdraw the proceeds using mule accounts. Therefore. financial institutions are expected to take a proactive and proportionate approach to combat money mule activity, which involves strengthening controls during onboarding, enhancing transaction monitoring to detect suspicious activity involving money mules and improving reporting mechanisms for prompt action. Moreover, as part of preventive measures, companies should aim to enhance consumer understanding regarding the potential dangers associated with money mules, with the aim of safeguarding them.

Generative AI???

Generative AI’s integration into the fraud space has dramatically reshaped the ability of criminals to exploit social media algorithms and fabricate highly convincing content. This has led to 3.4 billion phishing emails sent daily according to AAGiv, often using AI-generated content allowing them to proliferate further and faster than before. The continual battle against generative AI-related fraud requires innovative cybersecurity measures, heightened awareness, and adaptive detection methods to safeguard individuals and institutions for all industries. As a result, consumers now need to be ever more vigilant in identifying and reporting phishing attacks.

Optimise Your Capabilities with Our Proven Expertise?

The rise in fraud and the increase in sophistication of its perpetrators combined with greater regulatory scrutiny underlines how financial institutions need to ensure they have robust and effective systems, processes and controls in place. Yet the tight timeframes and complex subject matter creates a challenging landscape for financial institutions to implement these changes and maintain compliance.?

Protiviti’s Financial Crime Compliance specialised services outlined below are designed to reinforce your firm's adherence to new regulations while strategically positioning your organisation to address evolving technology and increasing levels of fraud.

• Fraud Prevention and Detection Strategies: firms will need to develop robust fraud prevention and detection framework tailored to their unique needs through designing policies and procedures in line with new offences, fraud risk assessments, implementing critical anti-financial crime controls and fraud monitoring tools, and collaborating with industry partners to share insights on emerging fraud trends. Protiviti has assisted many firms in developing fraud prevention and detection strategies.?
• Reimbursement Process Optimisation: optimise reimbursement processes by streamlining workflows, enhancing customer communication strategies and developing efficient procedures for verifying and processing reimbursement claims.?
• Data Analytics and Technology Integration: The effective use of data analytics and technology is key to managing APP fraud.? Protiviti can assist you in collecting and analysing data on the level of APP fraud, fraud reimbursement, treatment of vulnerable customers, the value of repatriated APP fraud funds, transaction volumes and the speed of reimbursement to meet your reporting requirements. Protiviti can also establish effective data sharing and collaboration initiatives to stay ahead of emerging fraud patterns by implementing advanced analytics tools, AI-powered fraud detection systems, and secure customer authentication solutions.?
• Training: develop and deliver training programs for employees and boards on fraud prevention best practices, customer interaction protocols, industry and regulatory expectations and overview of compliance standards.?
• Continuous Compliance Monitoring: deploy ongoing monitoring services, including Fraud audits and vendor technology assessments to ensure that financial institutions continue to adhere to the new reimbursement standards and regulatory guidelines.

Connect with Our Expert Specialists?

Should you require guidance in shaping your response to the new regulatory changes, do not hesitate to reach out to Protiviti’s Fraud and Financial Crime specialists: Christine Reisman or Bernadine Reese . Our team of experts have helped many financial institutions enhance fraud strategies, responses and systems.