Your IndustryOct 31 2013

Fraud rife in financial service firms

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
comment-speech

The report – Who’s Got Something To Hide? Searching For Insider Fraud – based on responses from just over 900 senior executives across a range of industries around the globe, found that the financial services sector had the second highest overall incidence of fraud in the previous year, after manufacturing, and the second highest frequency of information theft in the survey, with 29 per cent reporting that they had experienced this type of crime.

However, it topped the tables for internal financial fraud (29 per cent), regulatory or compliance breaches (26 per cent), and money laundering (8 per cent), and it has the highest number of respondents reporting increased fraud risk from the ever-greater complexity of its products (28 per cent).

Tommy Helsby, chairman of Kroll Advisory Solutions, Eurasia, said: “Fraud is on the rise again and while increasing regulatory pressure and compliance activity are probably driving increased fraud awareness and detection, undiscovered and unreported fraud is an infection with the potential to grow into a life-threatening corporate disease.”

Indeed, 47 per cent of respondents in the sector cited increasing IT complexity as the biggest driver of growing exposure to fraud for its firms, a greater percentage than in any other sector.

Another major driver of higher fraud risk was staff turnover, highlighted by 38 per cent of those surveyed, again the highest proportion of any sector polled.

Mr Helsby added: “Perpetrators of fraud are often thought of as faceless hackers in a distant land, but our experience shows that to be the exception rather than the rule.”

He continued: “The greatest vulnerability is to those who have already got past most of your defences by virtue of being an employee, partner or contractor. It is vital that as well as investing in technology, businesses mitigate the insider threat by focusing on areas like staff screening and due diligence on partners, clients and vendors.”

Adviser view:

Joss Harwood, director of County Durham-based Eldon Financial Planning, said: “It is not surprising that financial services is one of the worst affected areas for fraud, as it is the closest of all the sectors to actual money. It’s not surprising either that it tops the rankings for regulatory breaches, as it is arguably the most heavily regulated business sector in the world, and these regulations are often very difficult to keep up with. As for IT being a main reason behind it, this is only to be expected as the IT areas of many firms in financial services are often a mystery to everybody except a few people in the firm.”