Navigating the fraud landscape: 6 predictions for the year ahead

The evolving landscape of fraud in the financial sector demands a proactive approach to security. As criminals constantly refine their tactics to exploit vulnerabilities, the importance of predicting the trajectory of fraud and understanding the dynamics of KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations becomes critical for building robust defences.

There are six key predictions in 2024 that will help shape the battle against fraud in the financial services.

The convergence of fraud and money laundering defences (FRAML)

In response to the escalating problem, there is an anticipation for increased collaboration and aligned objectives between Anti-Money Laundering (AML) and Fraud teams within financial institutions, giving rise to the 'FRAML' paradigm.

Recognising the inherent links between money laundering and fraud, this integrated approach aims to reduce false positives, enhance customer onboarding experiences, and improve risk identification.

Latest Experian research shows that financial crime costs the UK a staggering £290 billion annually. The shift towards FRAML operations will be crucial in fostering more accurate risk assessments and comprehensive customer views.

The shift to plastic ‘money mules’ 

With current accounts facing tightened defences, criminals are predicted to shift their focus to alternative products like credit cards, retail store cards, or gift cards. 'Plastic money mule' fraud involves accomplices overpaying credit card balances and transferring the excess to fraudsters, exploiting gaps in transaction monitoring.

As a consequence, it’s vital for institutions to adapt their defences to these emerging trends, ensuring that vulnerabilities in various products and services are addressed.

Financial crime data sharing

The passing of the Economic Crime and Corporate Transparency Bill in 2023 lays the groundwork for improved financial crime data sharing among institutions. As criminals collaborate and exploit weaknesses in the financial system, this initiative seeks to empower institutions with shared insights, enabling them to identify bad actors and emerging fraud trends more efficiently and quickly.

The potential to access AML, KYC, and credit risk data from multiple organisations promises a significant leap in reducing overall fraud and AML risks.

Increased use of Open Banking for identity verification

The use of Open Banking is expected to lead to broader use of its identity verification capabilities. While unlikely to be the sole means of identification for high-value financial products, Open Banking data will likely complement other verification methods, playing a crucial role in reducing fraud and AML risks.

New forms of fraud and "scamming" due to APP fraud legislation

The Authorised Push Payment (APP) reimbursement legislation introduced in 2023, while essential for protecting consumers, has the potential to create new fraud opportunities for criminals. The stringent reimbursement rules may lead to a 'scamming spiral,' with fraudsters exploiting the quick return of funds within five days to perpetrate fraud repeatedly.

The industry must deploy new technology solutions and comprehensive education to counteract and prevent these emerging risks.

Growth in AI-driven fraud

The breakthroughs in AI seen are predicted to be harnessed by fraudsters to create hyper-realistic customer profiles. Advanced generative AI tools can now produce fake images, identification documents, and even social media accounts at scale, challenging traditional identification methods. In response, security-focused institutions are expected to implement AI-driven solutions to combat these evolving fraud risks.

In 2024, the financial industry must remain vigilant, collaborative, and technologically adept to protect businesses and customers alike. The merging of technology, data sharing, and proactive measures is our best defence against the ever-adapting tactics of those seeking to exploit the financial system.