Businesses need to up their game in war on financial fraud

HOW can businesses play their part in combating fraud? Financial fraud has come a long way since bank heists. Nowadays, criminals – often working as part of wider gangs – are targeting us digitally.

When innocent victims are scammed, it’s unlikely that it will be confined to one single service. Rather, fraudsters will lead their victims from one digital channel to another. For example, a scam might start on a social media platform like Facebook, promoting a bogus investment opportunity, before moving to another, like a fraudulent website, asking for your number – after which they call you to ask for the money upfront.

The Government has set out its fraud strategy which, it said, “marks a fundamental shift” in its approach to tackling the issue. Citing the severe harm fraud can have on the economy as well as families and businesses, the Government said it “will not tolerate the barrage of scam texts, phone calls, adverts and emails that cause misery to millions and make up over 40 per cent of all crime”.

But because often more than one digital channel is involved in a scam, there is one glaring chink in the armour: a lack of intelligence and data sharing between some businesses and governments.

While firms in some sectors, such as banking, are showing encouraging signs that they would want to share more intelligence with one another, currently firms in other sectors, such as telecoms, social media platforms work in silos. Yet, the more these organisations work together, sharing fraud indicators and best practices on how to tackle fraudsters, the more they can understand how criminals work, build better anti-fraud systems and stop them targeting innocent victims.

So what are the reasons why some businesses don’t want to share data?

The first reason offered by firms is that they’re concerned that sharing fraud intelligence increases the legal risk they face from GDPR legislation. Firms that fall foul of these laws could be slapped with heavy fines. Second, there is a sense that joining data sharing schemes may help competitors.

And finally, businesses face a range of technical and administrative costs to participating in data sharing schemes. Not all firms have the financial incentives to decrease fraud on their services.

All three arguments can – and should – be tackled. But it will take leadership from ministers to make the case. Here’s how Which? would respond to each concern in turn.

First, ministers should work with the Information Commissioner’s Office, a non-departmental body which reports to Parliament, to create new guidance that provides additional clarity on when and how businesses can share data to prevent fraud while still complying with data protection laws. This will help more risk-averse businesses to know how and when they can share data.

Second, allay competition concerns by facilitating data sharing hubs. These hubs can allow multiple organisations to contribute to them and could even be anonymous, with encryption technology. When shared fraud information is untraceable to a single organisation intellectual property is protected and companies should have no fear of reputational or service damage.

Third, establish duties to prevent fraud in key sectors. Banks and social media companies are now subject to duties thanks to our successful public campaigns but the telcos and website domain registries still have no such obligation leaving fraudsters free to flourish and attack consumers. Clearly, businesses need better incentives to tackle online crime, so financial repercussions from fraud on their services and a duty to prevent it should be made clearer, leaving firms in little doubt over their responsibilities to customers.

An increasingly digital economy has made life easier and more convenient for millions. But the flipside is that fraudsters are taking advantage of developments to make fraud attempts much more sophisticated and difficult to identify by consumers. That means that all actors involved in combating this terrible crime need to do more – together – to protect consumers.