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Banking Fraud: Who Should Be Blamed?

Equity bank was the latest bank to face customer complaints about banking fraud. The case is yet to be resolved.

Of recent, there have been several cases of banking fraud, including instances where it went un-detected until days later when a customer went to withdraw or get access to their account. When fraud occurs, it is natural to ask who should be blamed for the situation. While there are multiple parties involved in a banking fraud case, there is no one answer to this question, as different factors can contribute to fraud.

There is no one size fits all when it comes to fraud. In a recent story which made headlines, an Equity Bank customer, a one Rose Ahebwa claimed she lost her phone and it was used to access her Equity Bank Account. She had no idea her money had been stolen from the bank only to find out when she went to make a withdraw.

Another alleged incident of fraud was cited in the same bank in 2021 when a one Edith Nakacwa claimed her money amounting to Shs 21.9m was withdrawn from her phone with Equity Bank’s Eezzy Money App, a transaction she neither initiated nor approved.

All these cases have gone silent without the bank giving a clear explanation on what transpired and they continue to appear in a number of other banks. The Tower Post’s efforts to reach Equity Bank for a comment were futile as no one was available to clarify on the claims.

Individuals who engage in fraudulent activities often do so in order to obtain money or other resources they would not otherwise have access to. These individuals may be employees of the bank or external parties who have found a way to exploit vulnerabilities in the banking system. In some cases, fraudsters may use stolen or forged documents and social engineering tactics to trick bank employees into giving them access to specific accounts.

One of the factors that has contributed to banking fraud is the rapid pace of technological change. As new financial technologies emerge, criminals are constantly finding new ways to exploit vulnerabilities in these systems. Banks are constantly investing in new security measures to stay ahead of these threats, but it can be difficult to keep up with the latest developments in the field.

The sheer volume of transactions that take place every day make it impossible for banks to manually review every single one for potential fraud. Instead, banks rely on sophisticated algorithms and machine learning models to identify potential instances of fraud. While these systems are highly effective, they are not foolproof, and it’s possible for some fraudulent activity to slip through the cracks.

So, who should be blamed for banking fraud? The answer is complex, and there are many different stakeholders who play a role in preventing and responding to fraud. Here are a few key players to consider:

Banks: How are they facilitating Fraud?

While banks are not directly responsible for the actions of criminals, they do have a responsibility to protect their customers’ assets and prevent fraudulent activity. Banks that fail to invest in robust security measures, or that do not take fraud prevention seriously, can be held accountable for their negligence.

One of the ways in which banks facilitate fraud is through their use of technology. With the rise of digital banking, there has been a corresponding increase in the number of cybercrimes such as hacking and phishing scams. Cybercriminals take advantage of the vulnerabilities in banks’ online systems to access confidential customer data or make unauthorized transactions. Banks must ensure that their systems are up to date and secure to prevent such attacks. Failure to do so can result in significant losses for the bank and its customers. Some banks have multiple banking apps for each platform, with some being more secure than others, but do not enforce the use of the secure ones.

Another way in which banks can facilitate fraud is through their culture and practices. Banks are driven by the bottom line, and some may prioritize profits over ethical considerations. This can lead to practices such as aggressive sales targets or inadequate training of employees. In such a culture, employees may be incentivized to engage in fraudulent activities or may lack the skills and knowledge to identify and report suspicious transactions.

Moreover, some banks may also facilitate fraud through their partnerships with third-party vendors. These vendors may be less secure and more susceptible to cyberattacks, and as such, can pose a threat to the bank and its customers. Banks must ensure that they have robust vendor management policies in place to mitigate the risks associated with third-party relationships.

In addition, some banks may facilitate fraud through their lax compliance with regulations. Regulations such as the Anti-Money Laundering (AML) and Know Your Customer (KYC) are put in place to prevent fraudulent activities such as money laundering and terrorist financing. Banks that do not comply with these regulations may inadvertently facilitate fraud, whether by failing to report suspicious transactions or by not verifying the identity of their customers.

Regulators: What is their role?

Regulators have a vital role to play in preventing banking fraud. They are responsible for enforcing regulations and ensuring that financial institutions comply with the rules. However, regulators may inadvertently facilitate fraud through various means. For instance, they may impose regulations that are not effective in preventing fraud or that impose an undue burden on banks.

One way in which regulators may facilitate banking fraud is by being too lenient in their enforcement of regulations. Regulators may fail to adequately monitor or enforce compliance with regulations, thereby giving banks the impression that they can get away with fraudulent activities. This can lead to a culture of non-compliance, making it easier for fraudsters to exploit the weaknesses in the system.

Moreover, regulators may also facilitate fraud by creating loopholes or exemptions in regulations that allow fraudsters to take advantage of the system. For example, regulators may permit certain types of transactions or business models that are susceptible to fraud or money laundering. This can make it easier for fraudsters to engage in illicit activities and avoid detection by the authorities.

In addition, regulators may facilitate fraud by failing to keep up with the latest developments in the banking industry. Technology has rapidly transformed the banking industry, and fraudsters have become more sophisticated in their tactics. Regulators must keep up with these changes and ensure that regulations are updated to reflect new developments. Failure to do so can make it easier for fraudsters to exploit loopholes in the system and engage in fraudulent activities.

Lastly, regulators may facilitate fraud by failing to collaborate effectively with other agencies and institutions. Fraudsters often operate across borders and use various channels to move illicit funds. Regulators must work together to prevent such activities and share information to prevent fraud. Failure to collaborate effectively can create gaps in the system, which fraudsters can exploit.

Laxity of customers.

While fraudsters are the ones who commit fraud, there are instances when customers may inadvertently contribute to it through their laxity. Let’s examine how the laxity of customers contributes to banking fraud.

Failure to monitor their accounts regularly. Customers must review their account statements regularly to ensure that all transactions are legitimate. If a customer fails to review their account statements regularly, they may not notice fraudulent transactions, and the fraudster can continue to siphon money from the account.

Moreover, customers may also contribute to banking fraud by failing to protect their personal information adequately. Fraudsters often use phishing scams or other tactics to obtain customers’ personal information, such as passwords, usernames, or social security numbers. Customers must protect their personal information and not share it with anyone, even if the person claims to be from the bank.

In addition, customers may also contribute to banking fraud by falling for scams. Fraudsters often use various tactics, such as social engineering or fake websites, to trick customers into providing sensitive information or transferring funds to fraudulent accounts. Customers must be vigilant and cautious, and not fall for such scams.

Weak passwords. Fraudsters often use software to guess passwords or use social engineering tactics to obtain customers’ passwords. Customers must use strong passwords that are difficult to guess and change them regularly.

Way forward

Banks, regulators, and consumers can work together to fight fraud by adopting a multi-pronged approach that focuses on prevention, detection, and response. Let’s explore the role that each group can play in combatting fraud.

Banks have a central role to play in fighting fraud, as they are on the front lines of financial transactions. They must implement robust security measures, such as two-factor authentication, biometric authentication, and real-time fraud detection tools. They must also educate their customers about the risks of fraud and the steps they can take to protect themselves. Additionally, banks must have a plan in place to respond quickly to suspected fraud, including freezing accounts, investigating the issue, and working with law enforcement to prosecute the perpetrators.

Regulators also play a critical role in fighting fraud. They are responsible for ensuring that banks comply with relevant laws and regulations, such as anti-money laundering regulations and Know Your Customer (KYC) requirements. Regulators can help prevent fraud by setting strong standards for bank security, enforcing penalties for non-compliance, and providing guidance on best practices for fraud prevention and detection.

Consumers must take personal responsibility for protecting their financial information and accounts. This includes keeping their passwords and PINs secure, monitoring their accounts regularly for suspicious activity, and reporting any suspected fraud to their bank immediately. Consumers must also educate themselves on the latest fraud schemes and be vigilant in protecting their personal information, such as addresses, personal information, and card details.

A collaboration between banks, regulators, and consumers is essential to effectively combat fraud. Banks can work with regulators to share information on fraud trends and best practices for prevention and detection. There is also need for a joint effort from all stakeholders to educate the public about the risks of fraud and the steps they can take to protect themselves.

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