Rally your wider organization against fraud

What is the biggest fraud challenge facing banking leaders today?

The biggest fraud challenge facing bankers today in my opinion simply comes down to “keeping up”.

The last 10 years of advances and proliferation of tools available to bankers to manage/fight fraud is hard to figure out how best to utilize within your institution for your customer norms and needs.  At the same time, regulators continue to challenge the level of detail and rigor with customer complaints being top of mind, along with regulations further putting the burden on banks to do more and even take more liabilities.

How to balance the evolving landscape of tools, regulations and customer immediacy demands is challenging enough, but now with the significant enhancements and ease of AI-assisted techniques, fraud tools (e.g. authentication strategies) are now in question on adequacy and efficacy as deep fakes and core strategies are being challenged.

It takes a very strong and disciplined bank fraud team with a clear strategy to continually “work the problems”, while having an open-mind on how to enhance or evolve solutions yet finding the ‘risk-reward’ balance that is acceptable to internal governance teams, regulators, and ultimately customer/client needs.

What potential anti-fraud regulatory changes lie ahead?

Individual states are developing AI bills at a rapid pace. The AI bills, if passed, would require organizations using AI to establish strong controls in place to mitigate the risks of using this cutting-edge technology, which could ultimately lead to fraudulent activities, if left uncontrolled, especially if it fell if the hands of the wrong individuals. Also, the Federal Trade Commission (FTC) has issued a proposal that would make it easier for consumers to identify and avoid those AI initiated calls or texts, which typically come with an enhanced risk of fraud and other attempts to defraud institutions. An FTC final rule is expected sometime in 2025, while state related AI final rules could come forward at any moment.

What roles can AI play in fraud, money laundering and cybersecurity risk detection and policy enforcement?

AI technology used for fraud, suspicious activity, and cybersecurity attacks can enhance detection capabilities by analyzing huge amounts of data in real-time. It can identify patterns and anomalies that today’s methods might not identify. AI can adapt to new money laundering, fraud and cybercrime trends, ensuring continuous protection against emerging threats. Unlike the current set of rules, AI technology would allow users to keep up fraud trends as they develop. The ability to identify potential risks in real-time allows for proactive measures that minimize the financial implications to the financial services industry as a whole.

Where does fraud typically rank as financial institutions assess risks? Has this changed of late?

Fraud ranks high among the concerns of chief risk officers in RMA’s annual CRO Outlook survey. As financial institutions evolve their business to meet the needs of customers, bad actors tend to adapt with them.

We saw this during the pandemic – the surge in digital banking and online payments during lockdowns led to more cyberfraud; when in-person banking returned, there was a massive uptick in check fraud.

Financial institutions are constantly battling to stay ahead of this fraud, so the main question that’s on their minds is “What’s next?” To be prepared and proactive, many institutions are improving collaboration among internal teams, e.g. ORM, Compliance, Technology. And they are emphasizing training to speed up fraud detection.

The regulators are watching – it’s a high priority for them to protect banks and consumers by preventing fraud.

We’ve very recently seen increased regulatory attention boosting bank responsibility when it comes to third-party relationships (in this case, data records from fintech apps). As competition likely keeps up the pressure to partner with nonbank fintech, regulators will likely also look to increase related oversight. How might third-party fraud risk and compliance come into the picture? Are current policy management best practices up to the task or where would you like to see greater compliance foresight?

As banks increasingly collaborate with fintech companies, regulators will push for more stringent oversight to ensure data security and operational integrity, especially given the sensitive nature of financial information shared across platforms. Being responsive to regulatory changes should go beyond avoiding scrutiny – it should be a proactive effort to strengthen both the institution and the industry overall, driving innovation while maintaining a strong compliance culture. Fraud prevention will be a key focus, as third-party relationships expose institutions to additional vulnerabilities including data breaches, account takeovers, and fraudulent transactions. To stay ahead of these threats, banks should consider adopting advanced fraud detection tools and technologies, data analytics, and real-time monitoring. Institutions need dynamic, integrated frameworks that can address emerging risks in real time, with outputs feeding into broader enterprise risk management (ERM) strategies for a comprehensive view. Proactively addressing these evolving risks will help banks build trust, enhance customer protection, and fortify resilience in an increasingly complex financial landscape.

As fraudsters continuously change tactics, how has your education and messaging approach to customers changed?

Fraud mitigation education is a top priority. We have to be relentless informing clients about traditional products and services to protect them from fraud. But also help them understand the current landscape. It’s not just about online or complicated fraud events; it’s every aspect. Check fraud continues to be on the rise at staggering numbers. We always have to be in front of our clients educating them. And remember, if you are not talking to clients about fraud and how to protect their accounts, someone else is.

Is today’s banking consumer put at ease with greater authentication steps or frustrated by friction? Has this attitude shifted?

Clients’ perceptions of enhanced verification tools in contact centers can vary, but the general sentiment is influenced by how these efforts impact the overall experience, their feeling of security and convenience.  I do think this mindset has shifted in the last few years.

Most clients appreciate an extra layer of security, especially when dealing with sensitive data such as their financial information.  It provides a sense of confidence their personal information is protected.   Clients expect their bank to take steps to verify identities and the enhanced efforts increase trust, as clients feel their accounts are safeguarded against fraud or unauthorized access.

There must be a balance, if the verification process is too complex, lengthy or requires multiple steps clients may become frustrated.

The key is communication, clearly articulating why step-up verification is needed (large transaction, unusual activity, etc.) and explaining how these steps keep their personal information and funds secure are table stakes.  If the verification process runs quickly and smoothly, it is perceived as a benefit.   The First Horizon goal is to manage the client experience so that clients are protected without feeling burdened.

Should a more responsive fraud fight include scaling shared intelligence industry-wide or is anti-fraud protection a competitive differentiator and why? 

When fighting financial crime, the key advantage for bankers is their collective strength. The fraud landscape is continuously evolving to match the accelerating pace of technology, so it is increasingly challenging for any given financial institution to successfully navigate this incredibly complex and volatile terrain on their own. The best way for bankers to combat fraudsters is to band together, share expertise, and collaborate. There will always be room to compete for topline growth; fraud prevention requires a coordinated defense.   

Don’t miss the other insights, methods and tools that can help your financial institution shape and evolve its fraud strategy and prevention tactics in the BAI Deep Dive: Mitigating fraud threats.