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‘Psychological’ fraud rising, MHC webinar hears

A webinar hosted by Mason Hayes & Curran (MHC) has heard that the scale and sophistication of financial crime has increased, fuelled by technological advances.

The event, entitled ‘Financial crime risks in Ireland’s banking and payments sector’, was held in partnership with Banking and Payments Federation Ireland (BPFI).

Niamh Davenport (BPFI head of financial crime) noted a rise in psychological fraud, such as romance scams, as fraudsters tried to exploit human nature. 

She noted that many fraudsters were going directly to consumers, rather than trying to exploit banks, and that recovery was difficult once money left a victim’s account.

Romance scams

The webinar used case studies as a starting point for a discussion of the challenges financial institutions faced – including money laundering, fraud, and regulatory compliance.

Discussing one such case, Annraoi De Valera (head of fraud-risk compliance, Bank of Ireland) said that the advent of Valentine’s Day could lead to an increase in romance-related scams, which usually involved the creation of a fake online identity.

He described such scams as “horrible”, adding that there was “a real, tangible impact on people’s lives from these cases”.

De Valera said that banks should watch out, in such cases, for ‘red flags’, such as small amounts of money being sent overseas, followed by larger amounts.

He added that banks should examine whether their automated systems were adequate to identify these types of transactions, but the public also needed to be educated.

Recovering money

Asked about the options for victims to recover money, Rowena Fitzgerald (MHC partner and co-head of financial regulation) told the event that there was no ‘one-size-fits-all’ policy, adding that there was more scope to retrieve funds in cases involving cards than those involving authorised payments through an app or online banking.

Peter Johnston (MHC partner, dispute resolution) cited the Quincecare duty in English law, which requires a bank not to execute a payment instruction given by an agent if there are reasonable grounds for believing that the agent is attempting to defraud the customer.

He added, however, that this would not apply in the hypothetical case that the webinar discussed, where ‘John’ instructed the bank to pay ‘Laura’ €1,000 through a bank’s app.

The webinar also discussed the Central Bank’s approach to investigations into weaknesses in banks’ anti-fraud or anti-money-laundering (AML) systems, with Johnston urging banks to spend a lot of time and effort on their response to the initial notice of investigation, which starts the process.

He said that the timelines given by the Central Bank “aren’t particularly generous”, adding that banks should engage with the regulator if they needed more time.

Johnston added that entities should note that the Central Bank’s notices of settlement were now “considerably more detailed” than in the past and sometimes referred back to documentation sent to the Central Bank during the probe.

Support from management

Overall, Hand urged financial firms to “understand and be able to demonstrate how your firm complies with its regulatory obligations”.

She added that “horizon-scanning” could anticipate threats and mitigate against them.

Hand warned, however, that such actions would count for little without the right culture in an organisation – including support from senior management.

De Valera urged financial institutions to regularly engage with businesses within their organisation, to make them aware not only of current risks, but also about evolving nature of financial crime.

In the longer term, he added, “we must ensure that a culture of financial-crime awareness is seen and heard at a senior level within the organisation”.

AI optimism

A survey taken among attendees showed that 70% had seen an increase in financial-crime attempts, with just over 40% saying that improved IT systems would make the biggest difference to them in combating financial crime.

Just over 60% said that they were not using AI in their AML processes.

De Valera told the event that he was “cautiously optimistic” about the value of AI in this area, as it could do more mundane, manually intensive tasks, freeing up more resources to work on bigger risks.

He noted that AI had the ability to operate 24 hours a day, and would make fewer mistakes, but warned firms to strike a balance between reducing their operational burden and addressing risks.