Businesses, banks need early detection system to avoid financial fraud

Every fraudster has a pattern which is impossible to detect using traditional methods especially in the digital age 

by S BIRRUNTHA / pic source: Kenanga Investment Bank

AS MORE businesses and financial institutions have started to offer their products and services online, fraudsters are advancing to find loopholes and opportunities to take advantage of the shift. 

Kenanga Investment Bank Bhd group chief regulatory and compliance officer Maheswari Kanniah said the best way for businesses and banks to avoid financial fraud is to have an early detection system. 

She added that every fraudster has a pattern, and it is impossible to detect the patterns using traditional methods, especially in the digital age because the patterns are widespread and sophisticated too. 

Anti-laundering, payments fraud, internal theft, identity theft and other forms of fraud are all distressing organisations using traditional, batch-oriented and siloed methods of detection. 

“That’s because those methods often can’t identify the pattern without either a huge resource outlay, or worse, a significant delay before detection. 

“In the digital age, you have to fight fraud before it happens and you need digital age technologies to do it — artificial intelligence and machine learning,” she told The Malaysian Reserve (TMR) in an interview recently. 

According to Kanniah, fighting fraudsters is best addressed with a combination of data and speed, and many companies are now finding and using real-time techniques to uncover bad actors in their systems with great precision. 

She said that the combination of legislation, market dynamics and increasingly sophisticated fraud strategies requires one to be proactive in detecting fraud quicker and more effectively. 

“We could see a lot of scam cases being reported. Since the Movement Control Order period, where we were forced to embrace online platforms in carrying out our daily activities and for some, for the first time, all of us became vulnerable to fraud,” Kanniah said. 

The ‘i-Rakyat Trade’ investment scam in 2020 is an example. The scammers lured their victims by offering non-existent high investment yields as much as 13 times in the so-called international oil and gas industry.

“The police investigated after receiving a report of losses amounting to RM200,000 and successfully arrested 10 individuals. These scammers are still at young age, between 19 to 31 years old,” she added.

Many companies are now finding and using real-time techniques to uncover bad actors in their systems with great precision, says Kanniah (pic: MUHD AMIN NAHARUL/TMR)

Kanniah said that there are also the classic scam cases where scammers will call unsuspecting individuals while posing as the authorities, such as officials from the Royal Malaysia Police, Bank Negara Malaysia or Malaysian Anti-Corruption Commission and use scare tactics and social engineering skills to persuade them to reveal sensitive information or transfer money out. 

On this, she emphasised that it is important for the public and businesses to remain calm whenever they receive such calls and to always remember not to disclose personal or financial account information. 

She clarified that regulators will never ask for disclosure of such information through phone calls. 

At financial institutions, she said it is always important to continuously assess the fraud risk exposure and controls to be able to gauge the different possibilities of fraud occurrence so as to adopt the necessary protective and detective measures. 

She added that the clients should also be constantly aware of fraud and contact the authorised personnel at the financial institutions for clarification so as not to be a victim. 

Apart from early detection, Kanniah said that financial knowledge coupled with financial literacy can help prevent businesses and financial institutions from falling victim to scams and fraud. 

She stressed that one of the most important steps is educating the clients and having continuous engagement about the dangers of fraud. 

She also said that presenting realistic views of the risks they might face and giving tips for safe transactions are all shown to be well-received. 

“In turn, banks also gain their customers’ trust by detailing the measures put in place to protect their customers from fraud. 

“As for educating our clients, we have various targeted campaigns (such as issuance of explanation videos) to highlight the steps that they should take to protect themselves against fraud when investing with Kenanga. 

“We also constantly remind our clients to be alert on fraudulent schemes through emails and pop-ups on its online trading portals,” she noted. 

Additionally, she said Kenanga remains especially vigilant to make sure that security and protection of its client’s information are not compromised in any manner whatsoever. 

She added that despite the changes that are being adopted, Kenanga ensures that the security and safeguards which traditionally existed when such services were offered through conventional means continue to be present and are further enhanced as things go digital. 

Therefore, as and when any new initiatives are rolled-out, Kenanga is well and ready to detect and prevent the occurrence of fraud. 

Specifically, Kenanga like most financial organisations have actively implemented measures to prevent fraud and these include having multi-factor authentication requirements and ensuring adequate and proper verification steps prior to any transactions being done. 

“In regard to fraud detection and prevention, Kenanga has adopted and implemented fraud risk identification criteria and proactively monitors transactions and looks-out for any red flags which may warrant further investigations,” she said. 

She also added that these measures are being continually reviewed and enhanced to stay ahead of fraudsters and their fraudulent techniques. 

Having said that, Kanniah said at the end of the day it still boils down to the alertness of the customers as to whether they themselves fall prey to the fraudsters. 

“The fraudsters normally have various techniques and they will apply and exhaust all the various ways, until they can ‘trap’ the customers. 

“Therefore, we believe that we can only do so much for the customers in education and reminders but it is still left to the customers’ ability to spot the fraud when they are faced with such a situation,” she noted. 

Association of Certified Fraud Examiners development head of Asia Pacific Ganesh Thuraisingham said there are many ways for cybercriminals to get hold of one’s identity and personal information. 

He said in most cases, businesses and banks’ systems get hacked because of one’s carelessness or ignorance towards basic security parameters. 

Thuraisingham noted that once the system is hacked, the information can be sold or used against an individual or organisation or simply leaked online. 

“We need to always ensure the data we store or share over the internet is secured. We also need to constantly educate ourselves and people around us about the importance of cybersecurity. 

“While technology has made it convenient for all of us, it has also made it convenient for hackers to steal our data. Basic cybersecurity knowledge can help prevent and deter huge losses,” he told TMR. 

On that note, Thuraisingham said it is always good to not trust everything we see on social media immediately. 

He stressed that with various types of scams being reported these days, businesses and financial institutions need to be alert and cautious of unknown messages or in some cases, even from known social media profiles. 

He also reminded businesses and financial institutions to always check before responding to unknown messages and if unsure, they should always check with the actual account owner.