Fraud Management and Governance


Fraud occurrences have expanded by more than 130% in 2017, bringing about noteworthy fiscal and reputational misfortunes for financial establishments. Huge numbers of these episodes — including prominent violations, for example, the SWIFT assaults from a year ago — included the misuse of governance lacks and inefficient operational models.

While controllers, for example, the OCC, FFIEC, and Basel are expanding their examination on administration for chance administration, the need to create solid governance hones goes past compliance. Such practices are important to appropriately safeguard against developing business threats and increment operational proficiency.

In like manner, financial services organisations should find a way to upgrade their fraud governance processes, including executing a vigorous “three lines of resistance” working model.

This Financial Crime Observer talks about key extortion administration challenges, and clarifies what money related establishments ought to do now.

Key challenges

The most prominent challenges we see in accomplishing a sound fraud management working model stems from utilitarian storehouses for preventing and detecting fraud. Financial Services sector frequently battles with plainly characterizing parts and duties regarding extortion avoidance and recognition works, and guaranteeing that each of the three lines of resilience are cooperating adequately and not copying parts.

Subsequently, we frequently observe wasteful aspects in associations as exercises are pointlessly copied over different layers (and lines of resilience). At last, money related establishments are tested with exploring the immense and continually developing universe of fraud risks.This is particularly trying for bigger associations that have various special business units, goods and services.

For instance, bigger associations that have not sufficiently committed assets to completely survey their fraud risks tend to concentrate their endeavours on very promoted outside fraud risks, for example, business email misuse or and account hack, and frequently miss prominent threats confronting their association.

What should financial institutionsbe doing?

To guarantee viable joint effort and coordination across the whole business, financial services organizations ought to build up a fraud management operating process utilizing the three lines of Resilience system. This system limits the duplication or clashes that exist between the quest for business goals (first line of Resilience) and the requirement for target chance oversight (second line of Resilience), while autonomously guaranteeing that extortion administration exercises are being done as per composed strategies and methods (third line of Resilience). In building up this working model, associations ought to create formal and open correspondence instruments among and inside lines of Resilience groups to improve data sharing, acceleration procedures, and prevention abilities.

Preceding steps

Before engaging into the three lines of Resilienceframework, financial institutions should take steps toset up an establishment to help this working model.

These steps include:

  • Standardizing governance structures andfraud-focused committees, coordinated with extended financial crime risk management (e.g., cybersecurity,anti-money laundering, and anti-bribery andcorruption) and operational risk management,to supervise and conclude verdicts about fraud.
  • Assessing the target operating model design basedon a business culture and decidingif a neutralized, hub-and-spoke, or a blended modelbest suits the organization.
  • Developing a RACI (Responsible, Accountable,Consulted, and Informed) model to decide conventional roles and responsibilities as well as levelsof participation for functional groups.
  • Documenting roles and accountabilities for eachfunctional group to ensure that duties are properlysegregated and critical fraud management activities(e.g., deterrence, prevention and detection,investigation and response, and analytics andreporting) are appropriately addressed.
  • Defining reporting lines and requisite skillsetsfor key fraud risk management roles.

First Line of Resilience

Key firstline activities include developing and implementingthe authentication and fraud strategy, as well as owningthe fraud detection, surveillance and analytics, fraudcall centre, claims management, fraud investigation,recovery, Suspicious Activity Report filing, andbusiness transformation functions.

Second Line of Resilience

The primary role of the second line of Resilience is toprovide objective review and credible challenge to fraudrisk management efforts carried out by the first lineof Resilience.

Third Line of Resilience

The third line of Resilience, internal audit, is responsiblefor providing assurance by independently assessingthe design and effectiveness of fraud risk and controlpolicies, frameworks, processes and systems.

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