Post-Crisis Budget Cuts Leave Banks Exposed To Rising Fraud

In figures released recently, 250 global financial crime professionals say measures taken by their organisations to reduce costs in the wake of last year’s financial crisis are leaving them and their customers increasingly vulnerable to criminal attack.

Half of respondents in Norkom’s fourth annual survey of financial crime fighting activities in the world’s banks say that cuts to their own departmental spending plans are weakening their ability to keep pace with a rising tide of criminal attack. About 12 percent say they’ve lost a quarter of their anti-money laundering (AML) budget, while the figure is only slightly lower for fraud at 9 percent.

At the same time, 71 percent of respondents say fraud attacks against their business have increased over the past year, with 67 percent claiming their financial losses to fraud have grown over the same period. For almost a quarter (22 percent), that growth has been greater than one-fifth.

“It’s ironic that the very actions banks are taking to shore up their damaged finances may sabotage their chances of recovery,” says David Dixon, Norkom’s director of Global Solutions. “However, there is clear evidence that advanced crime fighting approaches, underpinned by consolidated technologies, can reduce fraud losses and, simultaneously, reduce operating costs in crime fighting departments.”

This year’s research revealed that 79 percent of respondents using a consolidated technology approach claim it allowed them to improve their ‘percentage of fraud detected’ performance (the amount of fraud detected and prevented as a proportion of total fraud reported to them by their customers), while 63 percent have also seen their operating costs decrease.

Additionally, 56 percent of all companies using common case and workflow management tools within their fraud technology solutions are achieving dramatic reductions in their fraud losses, thanks to the ability it gives them to take action quickly to stop crime in its tracks.

About 42 percent of respondents say they now have a single, enterprise-wide software solution to detect and investigate AML; 17 percent for fraud. 48 percent of the remainder have deployed an overarching technology that consolidates information from their different detection systems in order to enhance investigation management. A further 30 percent plan to implement such technology within 12 to 24 months.

“Two lessons emerge from this research,” says Dixon. “Firstly, attempts to save money by cutting financial crime budgets are likely to be counter-productive. Secondly, fraud losses can be reduced through the use of consolidating technologies which, in turn, allow business processes to be streamlined. So, if the twin imperatives are to cut losses and stem costs, there’s good news on both fronts.”