Insight

Fraud risks grow as cost-of-living soars

Written by Jake Plenderleith on Monday August 15, 2022

Man and woman worried about bills

Squeezed budgets, sluggish wage growth and eye-watering costs in supermarkets and at the petrol pump – the economic outlook is, frankly, very bad indeed, and silver linings vanishingly rare.

The legacy of the pandemic, a global lack of goods and materials and the war in Ukraine have each combined to produce a cocktail of economic woes that is proving hard to swallow.

Add to this the underlying anxiety regarding the climate, and it is hard to not conclude that the world today is characterised by nothing if not an inexorable series of crises. 

Whether this conveyor belt of crises is unique to our age or is in fact the permanent nature of human affairs, is anyone’s guess. What we do know, is that there is a significant minority who will attempt to ameliorate the effects of the economic downturn in a bid to rescue or improve their financial health. Just as fraud grew during covid, so will it now flourish with prices at historic highs.

One could argue that this is due in part to mere fatigue: constant vigilance against a plethora of threats, abetted by advantageous conditions like the pandemic, takes its toll. This in itself is a problem, and we need smart thinking to prevent morale from being sapped by wave after wave of novel fraudulent activity.

Whether this the is reason fraud is rising so fast or not, there is little doubt that it is. The question is just how widespread this will prove to be, and what can be done to help prevent it.

Economic danger

To try and answer this, we need to acknowledge the size of the problem heading towards us, which means taking a moment to reflect on the perilous economic difficulties in which some countries are mired.

This summer has seen prolonged and serious protest in Sri Lanka, for example, where inflation is above the 50% mark. In fact, problems there are so profound that is difficult to know where to start. More than $50 billion is owed to foreign lenders, and fuel and other vital provisions are in short supply; power cuts are a daily occurrence and in June schools were closed for a fortnight in the capital to conserve energy.[1]

Things aren’t quite as serious as that in the UK, but interest rates there have been raised to their highest level in 27 years; inflation, meanwhile, is at a 40-year high, with experts warning of further hikes this winter.[2] The Bank of England has also forecast five successive quarters of contraction.

Sri Lanka and the UK are just two among scores of countries facing similar pressures, which will affect businesses just as it will individuals. And with economies and families under intense financial strain, there has seldom been a worse time to fall victim to fraudsters.

The troubling thing is that the fraud threat is already widespread. In early August, the UK was revealed to be the ‘card fraud capital of Europe’.[3] Indeed, the UK possesses the unenviable accolade of having the highest number of victims (per 1,000 people) and the highest financial losses to card fraud of any European country.

An inevitable rise in fraud

Some crime is premeditated, some opportunistic. Given the chastened times that are almost certain to come – thought to even include rationing and blackouts in the UK[4] – both are expected to rise, and so now is the time to act to strengthen existing anti-fraud defences.

The first troubling area to address is authorised push payment (APP) fraud, which has grown exponentially. Huge losses have been reported in the US and in Europe, with criminals having honed their skills during various coronavirus lockdowns.

As ever, simply making the public aware of the danger is a relatively straightforward and beneficial first step, and most banks’ apps now have an immediate warning on APP when a customer logs on.

The reputational harm caused by not properly protecting or responding adequately to APP victims should serve as a warning to firms: media reports of customers angry and upset at a perceived lack of action by banks are legion, with the UK’s APP scam code – a voluntary scheme to which many banks belong that aims to treat fraud victims with greater consistency – recently described as a ‘toothless joke’ by one major newspaper.[5]

Financial institutions should ensure that they take proactive steps to reverse this perception and protect themselves and their customers. A repeated failure to do so will not go unnoticed by customers, whose ability to voice their dissatisfaction to a wide audience is today very quick, and very easy.

To avoid this, firms must look at the detail and identify fraud trends.

Interestingly, the niche within APP fraud that now leads all others is investment scams. Cryptocurrency scams[6] are also riding the crest of a wave. In the US, digital assets comprised almost half of the $1.1 billion lost to fraud on social media in the 15 months prior to March 2022.[7]

We are also going to witness a massive spike in demand for credit. Vulture-like, fraudsters are already primed to take advantage of the plight of ordinary people. Financial institutions have an obligation to protect the vulnerable, and so must prepare themselves for a likely rise in attempts at customer exploitation.

Finally, one must not overlook employee fraud, a perennial issue but one that is particularly potent now that bills are rocketing. It is imperative that sound systems and controls are in place, and that they are robustly monitored, to minimise the chances of success for any bad actors.  

What firms can do

Firms, of course, must look to protect themselves from fraud at all times, but especially during periods of economic hardship.

First, firms have to be alert to the threat, including the nature and potential damage different types of fraud are capable of inflicting. This message must then be relayed without delay to colleagues across the organisation, and compliance departments will be the determining factor in how readily this message is absorbed and acted upon.

Those firms that possess a culture of continuous learning – a learning habit central to any successful individual or organisation – will be at the forefront of any fraud resistance, for it is those firms whose staff possess the appropriate knowledge and critical thinking skills that will be agile enough to respond to changes in criminal behaviour.

Regular risk assessments and testing should be performed to identify areas of weakness and vulnerability, and steps taken to address these in a timely manner; on the customer-facing side, understanding their needs will be the central pillar around which a durable anti-fraud defence will be built.

An understanding by compliance of burgeoning areas of fraud is also key. Crypto fraud, as mentioned, is growing, and it is no longer sufficient, given its adoption by so many individuals and firms, for compliance professionals to be unaware of its potential for criminality.

Protecting against all and every type of fraud, with total success, is unrealistic. But it’s not unrealistic to expect appropriate, targeted and effective action to be taken by firms to protect themselves and the public. When economies do recover and the current crisis begins to abate, those firms that shirk this obligation won’t be forgotten.

For more insights on meeting the needs of vulnerable customers, keep an eye out for the next edition of inCOMPLIANCE, due out in September.

Find out about our Demystifying Cryptocurrencies course ►


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[1] BBC, ‘Sri Lanka: Why is the country in an economic crisis?’, 14 July 2022: https://www.bbc.co.uk/news/world-61028138 – accessed August 2022

[2] Phillip Inman, ‘UK inflation will soar to ‘astronomical’ levels over next year, thinktank warns’, The Guardian, 3 August 2022: https://www.theguardian.com/business/2022/aug/03/inflation-will-soar-to-astronomical-levels-over-next-year-thinktank-warns – accessed August 2022

[3] Social Market Foundation, ‘UK is card fraud capital of Europe – think tank’, 3 August 2022: https://www.smf.co.uk/uk-is-card-fraud-capital-of-europe-think-tank/ – accessed August 2022

[4] James Forsyth, ‘Rationing and blackouts are a possibility this winter’, The Spectator, 8 August 2022: https://www.spectator.co.uk/article/the-new-energy-protectionism – accessed August 2022

[5] Iona Bain, ‘Banks need to do more to fight scams: They would be more proactive if they were forced to pay back lost funds’, The i, 20 July 2022: https://inews.co.uk/inews-lifestyle/money/bills/banks-do-more-fight-scams-forced-pay-back-lost-funds-1749433 – accessed August 2022

[6] Financial Times, ‘SEC charges 11 in ‘massive’ crypto Ponzi scheme’, 2 August 2022: SEC charges 11 in ‘massive’ crypto Ponzi scheme | Financial Times (ft.com) – accessed August 2022

[7] Siddharth Venkataramakrishnan, ‘Scammers prey on fears over cost of living crisis’, FT, 5 August 2022: https://www.ft.com/content/3d21429a-2630-4f7e-8b00-03f7728bb86b – accessed August 2022


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