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COVER STORY

FRAUD RISK

MANAGEMENT

IN BANKS - BEST

PRACTICES

F rauds in banking sector have been a major con- covering early detection, prevention, reporting, monitoring,

cern for the regulator as well as all stake holders.
recovery and follow-up of frauds.
Realizing the gravity of the situation, Reserve
Bank of India had come out with a framework for
dealing with credit related frauds during May 2015. This has Definition of Fraud:
RBI has defined fraud as an act of commission and / or abet-
led to initiatives like the concept of Red Flagged Accounts
ment, which is intended to cause illicit gain to one person(s)
(RFAs), where suspicions of fraudulent activity thrown up by / entity and wrongful loss to the other, either by way of con-
the presence of one or more Early Warning Signals (EWS)
cealment of facts, by deceit or by playing a confidence trick.
are to be taken cognizance by respective banks and
promptly reported to the Fraud Monitoring Group (FMGP) Frauds can be broadly categorized into external frauds and
of the concerned banks. internal frauds. However, frauds in banks arising out of both
system and human failures may be grouped into 4 catego-
Already banks have their own Fraud Risk Management Poli-
ries on the basis of perpetrator of fraud.
cies with the objective to create a proactive framework
1. Frauds committed by employees.
addressing the occurrence of frauds in the banking system
2. Frauds committed by employees in collusion with out-
About the author siders who may or may not be the customers of the
bank.
Viju A
3. Frauds committed by outsiders / customers with insider
Assistant General Manager and
Discipline-in- charge (Risk Management) support / involvement.
Union Bank of India 4. Frauds committed exclusively by outsider, who may or
Bengaluru may not be the customer of the bank.

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