When Did Fraud Begin to Occur?
Financial fraud has existed since the beginning of human civilization. Many legislators and statesmen have introduced new fraud prevention laws of their era to stop fraudsters from jeopardizing the credibility of governmental organizations, law enforcement, and the financial system.
In the recorded history of frauds, Ancient Greece is known to have documented its first fraud case when two fraudster sea traders Hegestratos and Xenothemis intentionally sank their ship, which was an insured boat (In doing so, one of them named Hegestratos lost his life and drowned).
How Frauds Became Prevalent in the Contemporary World?
With the advancement in technology and artificial intelligence, fraudsters have enhanced their deceptive strategies to bypass financial regulatory compliance and get away with their crimes.
However, the fundamental scamming strategies remain the same even after thousands of years.
Since financial institutions stand at the forefront of financial crimes. Therefore, compared to other industries, they are more likely to deal with fraudsters and criminals. The existence and growth of a financial business depend on implementing effective fraud prevention strategies.
As per the recent research conducted on fraud cases experienced by the organizations, 51% of surveyed organizations reported some form of fraud experience in their last two years of working history, which has increased exponentially in the last 20 years of the survey history.
For a financial firm, it’s a major challenge to protect their firm against rising financial fraud. Now it is more essential than ever to have fraud detection and prevention solutions.
How the Pandemic Accelerated the Fraud Cases in the US?
In 2021, general fraud cases cost U.S. consumers 5.8 billion dollars annually. In the pandemic year of 2020 has been reported as the highest number of fraud cases with 2.8 million filed reports of fraud cases since the year 2001, whereas the average loss ranges to $500 per scam.
Not all jurisdictions require firms to have mandatory fraud prevention programs. Some jurisdictions obligate the service provider industry, for instance, insurance corporations, to have a fraud prevention system to avoid financial disasters.
In the UK, financial regulatory bodies hold firms liable if they don’t have the required fraud prevention program in place and if they benefit from employee fraud. UK firms are also held accountable in case their clients are targeted by fraudsters, in particular, authorized push payment (APP) fraud.
In today’s financial crime landscape, increasingly sophisticated fraud schemes have pushed financial firms to protect their customers’ transactions and online monitoring of customers.
How Financial Institutions Pay the Price for Inadequate Fraud Monitoring?
Frauds not just disrupt the moral fabric of society. It also damages the integrity of government institutions and law enforcement agencies. It goes on to threaten the individual as well as the national security of a nation. As for financial firms, fraud cases usually lead to damaging consequences like
- Reputational damage and loss of credibility of the firm.
- High-profile probes by government agencies and regulatory bodies.
- Long-term financial losses.
Declination of Profits
The global economy loses 5% of its profits every year around the world due to rising fraud cases. The spillover damage caused by such losses is incalculable. As per the report released by the Federal Bureau of Investigation (FBI), there was a total loss of $3 billion suffered by the elder fraud victims who individually suffered a loss of an average of f $35,101. This figure rose to $55 billion in 2021 due to the advancement in technology which facilitated the cross-border fund transfer.
Deterioration of Credibility
People use financial firms to save their lives and protect their hard-earned money from any harm. However, when a firm loses its credibility for getting embroiled in a client’s fraud case, then people will not feel safe or entrust their money to a firm with a damaged reputation. The success of a financial business lies in its market reputation. Banks are there to protect the financial assets of people. And if they fail to do their job, then they will lose their customers and investor’s confidence.
Why the Financial Industry Should Prioritize Fraud Prevention?
Therefore, financial institutions are recommended to prioritize risk management to counter the damage caused by any financial fraud. In the year 2018, as per the study conducted by the University of Oxford, for financial firms, reputational damage is directly proportional to fines by regulatory bodies, in particular when a firm’s damaged reputation affects the stock market. Fraud prevention is a never-ending war, and financial firms must employ professional help or fraud detection solutions to fight this war. Most firms cannot afford human resources or fine expertise to keep an eye on in-house fraud trends and typologies. However, spending on fraud detection services is always a worthwhile investment.
