Fraud Mon­i­tor­ing – 3 Types of Banks

Banking Frontiers - - Counter Measures - Jwa­har Bammi, Prin­ci­pal So­lu­tions Ar­chi­tect for En­ter­prise Fraud and Risk Man­age­ment So­lu­tion, FIS

When we ex­am­ine the cur­rent state of fraud mon­i­tor­ing in banks, there are three classes of banks. The first group com­prises those that have re­al­ized and em­braced the value in fraud pro­tec­tion and preven­tion. The sec­ond group is banks that put fraud man­age­ment sys­tems just to sat­isfy the reg­u­la­tory re­quire­ments, with­out un­der­stand­ing the im­por­tance of fraud. Fi­nally, we can clas­sify in be­tween peo­ple who have put in fraud preven­tion sys­tem with good in­ten­tions, but they tend to take a very nar­row view of fraud. They look at fraud in the same com­part­ments as their fraud applications. The own­er­ship in many banks are struc­tured in the same way and they do not have bud­gets for broader im­ple­men­ta­tion. The cross-chan­nels ef­fect from other chan­nels would help make their de­tec­tion in their ver­ti­cal more ef­fec­tive. In the third cat­e­gory, most banks con­cen­trate on highly vis­i­ble frauds like money laun­der­ing.


The growth of on­line and mo­bile chan­nels can en­rich the abil­ity to de­tect money laun­der­ing. For ex­am­ples, if you mon­i­tor the thresh­old move­ment of money, nor­mally that sat­is­fies the AML re­quire­ment, but if you com­bine that with trac­ing the move­ment of that money to an ex­ter­nal bank and com­ing back, then you are de­tect­ing yet an­other sce­nario of AML. An­other ex­am­ple is mule ac­counts, which can be a huge li­a­bil­ity to a bank, be­cause if your bank is the last in the chain of mules and some­thing goes wrong in that chain, most likely every other bank, which was part of the trans­fer, is going to claim that value from you. So, there are some very high-pro­file mule cases, where the banks were left hold­ing a bag of $50mil­lion in the com­mer­cial set­tle­ment chan­nels.

Peo­ple don’t re­al­ize that in this kind of scheme they still have a rep­u­ta­tional risk. Ex­pe­ri­ences have shown that peo­ple are not mov­ing away from tra­di­tional in­sti­tu­tions, but if they lose con­fi­dence in their bank, es­pe­cially in the com­mer­cial ac­counts, they move to other big­ger in­sti­tu­tions.


When it comes to pro­cesses that banks should adopt for han­dling the sec­ond and third cat­e­gories, the sec­ond cat­e­gory tends to be smaller banks. For in­stance, a large port­fo­lio of the global FIS clients are credit unions and lo­cal banks with less than $1 bil­lion as­sets. In In­dia, the pro­file is lit­tle bit different, be­cause bank­ing li­censes are na­tion­wide. In the west, you buy a core bank­ing sys­tem, then the core bank­ing sys­tem pro­vides you with a min­i­mum of fea­tures, such as in­ter­nal fraud, AML, cheque fraud and pay­ments chan­nel like ACH. They tend to buy the cheap­est fea­ture-based so­lu­tion rather than step­ping back a take a holis­tic view of re­al­iz­ing the value from fraud de­tec­tion.

Since this tends to be a low-price sale, every anti-fraud ven­dor tends to take the least com­mon de­nom­i­na­tor ap­proach and what they pro­vide is some generic sce­nar­ios which are cov­ered by low cost tech part. In to­day’s world the fraud­sters have moved be­yond the bank will not de­tect a lot of ac­tiv­ity at the lower end.


For the third cat­e­gory au­di­ence, you can ex­pand the port­fo­lio of uni­verse of things that you are de­tect­ing just by looking at re­lated ac­tiv­i­ties. By looking at ob­vi­ous places every­one knows to­day that banks have faults from in­sid­ers. Every­one knows that just the na­ture of the fraud­sters changes. To­day, you have less of loan fraud­sters and more of fraud rings. Fraud rings are too in­tel­li­gent to hit you in one chan­nel. You re­ally have to have a healthy re­spect for the fraud­sters, oth­er­wise they will beat you down.

Jwa­har Bammi

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