Page 52 - Banking Finance October 2024

ARTICLE

1. Internal Fraudsters: 2. Greed and Opportunity:
Internal fraud involves collusion of bank staff or execu- The confluence of personal financial greed and ample
tives who exploit their positions of trust to commit fraud. opportunities in loosely monitored systems is a sig-
Common tactics include: nificant driver of fraudulent actions.
Misappropriation of assets: Employees divert funds
for personal gain. 3. Lack of Vigilance and Regulatory Loop-
Forgery: Alteration of documents and signatures to holes:
authorize unauthorized transactions. Delayed regulatory updates and the lack of stringent
compliance mechanisms contribute to systemic weak-
Overriding controls: Executives bypass established
nesses.
procedures and internal controls to facilitate illicit
transactions.
4. Technical Advancements:
2. External Fraudsters : While technology advancements have streamlined
banking processes, they have also provided sophis-
External fraud often involves customers, outsiders, or
ticated tools for fraudsters to exploit vulnerabilities
professional fraud syndicates. Methods include:
in digital infrastructures.
Identity theft: Using stolen personal information to
commit financial fraud.
Strategies to Curtail Banking Frauds
Credit card fraud: Duplication and unauthorized use
Mitigating banking frauds requires an amalgamation of
of debit/credit cards.
technological innovation, stringent policy frameworks, and
Phishing and cyber-attacks: Gaining access to sen- a culture of vigilance and integrity. Here are some ef-
sitive banking information via fraudulent communication. fective strategies:
1. Strengthening Internal Controls:
Why Frauds Occur? Enhancing internal controls through regular audits,
There are Several factors contribute to the prevalence of employee background checks, and segregating du-
banking frauds in India, let us try to understand that why ties can diminish opportunities for internal fraud.
the frauds occur.:
1. Systemic Vulnerabilities: 2. Advanced Technology Deployment:
Outdated technology systems, weak internal controls, Implementing robust cybersecurity measures, AI-
and inadequate risk management frameworks can based fraud detection systems, and blockchain tech-
create an environment conducive to fraud. nology can safeguard against external threats. Real-
time transaction monitoring and predictive analytics
help in prompt anomaly detection.

3. Regulatory Enhancements:
Banking regulators must update frameworks to keep
pace with evolving risks. Stricter KYC (Know Your
Customer) and AML (Anti-Money Laundering) pro-
tocols are essential for reducing identity-based
frauds.

4. Employee Training and Awareness:
Continuous staff training programs focusing on ethi-
cal conduct, fraud awareness, and compliance can fos-
ter a culture of vigilance.

46 | 2024 | OCTOBER | BANKING FINANCE