Fraud poses serious risks to banks, warns CBO
Commercial banks and financial institutions in the Sultanate are required to put in place robust policies and systems to ensure the prevention, timely detection and speedy response to incidents of fraud, the Central Bank of Oman (CBO) stressed here on Tuesday.
The advisory came at a seminar on Fraud Risk Management hosted by the Association of Certified Fraud Examiners (ACFE) Oman at the College of Banking and Financial Studies (CBFS). CBO Executive President Tahir bin Salim al Amri, was the chief guest at the event. Also present were high-level officials of the apex bank, as well as Davis Kallukaran, President of ACFE Oman.
In opening remarks, the CBO Executive President warned that fraud poses a “serious and costly problem” for financial organisations anywhere in the world. Citing well-founded statistics, he noted that organisations are liable to lose around 5 per cent of their annual revenue to fraud on average.
“With growing globalisation, competitive markets, technological developments and economic downturns, the risk of fraud is on the increase. Despite the serious risk that fraud presents, many organisations still do not have systems and policies in place to prevent, detect and respond to fraud,” he lamented.
A pair of circulars issued recently by the CBO outlines steps that banks must take in order to create a comprehensive and robust framework for deterring fraud. The centrepiece is a 25-page document, referred to as the ‘master-circular’, setting out new reporting instructions on fraud risk, that came into effect from January 1, 2018. Operating instructions governing fraud risk management came into force on April 1, 2018, affording banks a full three months to under a complete ‘gap analysis’ between the CBO’S specifications for banks and existing practices.
Although not mandatory, banks have been encouraged to have in place dedicated Fraud Risk Management departments that are distinct from the internal audit or compliance departments.
In a presentation on Fraud Risk Management, V N Sethuraman, an executive in the Banking Development Department at CBO, described fraud risk as one of the “most significant operational risks” that continues to evolve over time.
“High value fraud can adversely impact the profitability, solvency, viability and liquidity of financial institutions,” he warned. “History abounds with examples of fraud extinguishing banks altogether. Fraud can also have systemic ramifications because banks are the only privileged institutions that are permitted to accept deposits and, because they
The Central Bank of Oman classifies fraud into following 10 categories: 1. Misappropriation and criminal
breach of trust 2. Theft of customers’ details / data to surreptitiously transfer/ withdraw funds 3. Unauthorised intrusion into an institution’s systems and processes, including delivery channels, to stealthily transfer/ withdraw funds 4. Creation of fictitious accounts, manipulation of books of account and sending bogus
e-mails/other communications 5. Availing credit facilities by misrepresentation of facts/ submission of forged documents 6. Unauthorised credit facilities extended for reward or illegal gratification 7. Intentional negligence
fraudulent cash shortages 8. Cheating and forgery 9. Corruption or ethical conduct by a person entrusted with a position of authority 10.Any other type of fraud of varied deception/s, not falling in the above categories and hold close linkages with the payments and settlements system, they could adversely affect the banking system. Hence, fraud risk management is required to ensure the viability and solvency of banks and also safeguard systemic stability.”
Although not mandatory, banks have been encouraged to have in place dedicated Fraud Risk Management departments that are distinct from the internal audit or compliance departments. The master-circular also lays down procedures for reporting incidents of fraud – whether attempted or successful – to the bank’s board of Directors, Royal Oman Police, and the CBO.