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The future of fraud: EY US point of view
Based on our conversations with WAM firms and the current market trends observed, we suggest that firms take into consideration the following leading practices to proactively address fraud trends and be better prepared to succeed in the evolving fraud landscape.
Firms should seek to enhance their fraud tracking capabilities pertaining to fraud typologies, specifically scams. By clearly tracking and categorizing different fraud and scam typologies, firms can take a more data-driven approach when tailoring their control framework. As firms work to improve their tracking and reporting capabilities, they will have opportunities to better define and understand their unique fraud exposure and related losses. This will be critical as firms work to better understand the vulnerabilities that are leading to firm and customer losses.
Firms will need to apply more friction (e.g., slowing down instant payments with a high risk score) to the customer experience and emphasize education for existing customers and employees as key enhancements to their preventative control framework. Given the complex nature and sophistication of recent scams observed, customers are being coerced into authorizing fraudulent payments out of their account more often than in previous years. Education about relevant fraud typologies and the ability to slow down the movement of funds when red flags are identified are going to be essential to mitigating fraudulent activity before it takes place. Firms must work to understand how much intervention they should add to the money movement and onboarding process to fight scams and fraudulent account openings.
Firms must be diligent and consistent in their assessment of their own liability when a successful fraud event occurs. Most firms typically reimburse customers when there is a breakdown in the firm’s control framework. In addition to a sound preventative framework, firms should establish clear procedures to effectively identify customer-initiated money movement resulting from fraud and come to a consistent remediation decision. In doing so, firms will have taken into consideration the threat of litigation, regulatory action and reputational harm when making the decision to reimburse their customers.
Firms should continue to prioritize the implementation of AI and machine learning as it becomes more commonplace throughout the industry. The need for effective AI tools will be driven by increasingly sophisticated fraudsters who are leveraging the same AI technology to find new vulnerabilities and continue to find ways to breach firms’ control frameworks. Firms will need to determine how to best implement this new technology while staying current on the newest methods being leveraged against them. Capabilities that were considered cutting-edge from last year, such as voice biometrics, have already been proven to be vulnerable to more advanced techniques used by fraudsters, and firms will have to keep this threat in mind when evaluating their current risk and control framework.