Financial institutions are now dependent on various online banking and finance platforms for transferring money.
Likewise, a growing number of individuals and businesses are also dropping cash in favor of electronic payment platforms.
Unfortunately, this widespread acceptance of digital finance platforms has greatly incentivized criminals to commit a variety of financially motivated cybercrimes.
If you think your organization is somehow immune from these types of criminal activities, think again.
Here are 9 facts and figures about online financial crimes that should give you pause:
51% of Surveyed Organizations Were Victims of Platform Fraud
A survey commissioned by the think tank PWC found that just a little over half of the surveyed institutions reported that they were victims of crimes committed over an electronic platform.
This means that there is a better than an even chance that your organization or others that you work with may already have been victims of cybercriminals.
The widespread incidences of these types of online financial crimes underline the need for financial institutions to continually test and improve their AML compliance capabilities.
Thankfully, newer platforms driven by advanced artificial intelligence and machine learning algorithms are now able to reliably prevent or mitigate most instances of cybercrime.
36% of Institutions Will Suffer Reputational Damage as a Result of Fraud
It should be noted that in the same PWC survey, the 51% figure only counts organizations that reported having been victims of platform fraud.
The real incidence of platform fraud is likely much higher, either due to organizations not yet realizing they were victimized or because they chose to not disclose these incidents.
The latter case would be understandable, as the same survey found that 36% of institutions may suffer from reputational damage should they become victims of cybercrime.
Financial institutions are especially vulnerable to these losses of confidence, as these can directly affect their profitability.
53% of Institutions Affected by Fraud Report Financial Losses
The same PWC survey further notes that direct financial losses result from more than half of all platform fraud incidents.
This does not necessarily include opportunity costs from implementing serious AML measures or indirect losses such as those resulting from a loss in reputation.
In any case, the failure to seriously address AML compliance may leave an institution at an elevated risk of financial losses.
Corruption Costs the Global Economy USD 3.6 Trillion Annually
Corruption is potentially one of the largest drivers of financial crime.
The International Compliance Association (ICA) has pegged the cost of corruption at USD 3.6 trillion each year, accounting for the direct economic losses as well as the cost of preventing them.
Unfortunately, the cost of these activities in the form of human suffering is much more difficult to account for.
Financial Crime Proceeds May Account for 5% of Global GDP
According to a report by the World Economic Forum (WEC), 2 to 5% of global GDP is related to proceeds from criminal activities.
A large portion of these activities involves financial crimes, specifically money laundering.
Indeed, the WEC even goes so far as to recommend focusing on global AML compliance efforts as a key strategy for combating financial crimes.
The Average Cost of a Data Breach Has Risen to USD 4.24 Million
A report by the IT governance advocacy group Information Systems Audit and Control Association (ISACA) found that the average cost of a data breach is currently at around USD 4.24 million per incident.
Given the dramatically increased volumes of financial crimes in the post-COVID world, the costs can quickly spiral out of control if institutions are not able to immediately detect these incidents and ascertain the methods used by cybercriminals.
Thus, using security solutions powered by advanced machine learning is critical to prevent serious losses.
Deploying More than 50 Cybersecurity Tools Degrades an Organization’s Security Posture
Most financial institutions and other large organizations do recognize the need for better cybersecurity to tackle financial crimes.
This has caused global cybersecurity spending to steadily increase since 2017. However, many organizations are finding out that throwing money at cybersecurity doesn’t always result in a better security posture.
Another recent study found that organizations that use an excessive number of cybersecurity tools will see a decrease in their ability to handle threats.
The study found that organizations start to see their security posture degrade when they use around 50 different tools. This partly has to do with human users being unable to fully maximize the utility of their different platforms and solutions if there are simply too many of them to be proficient in.
This underlines the benefits of using a few seamlessly integrated solutions over a hodgepodge of different software.
Using current-generation solutions that offer better automation may also serve to lessen users’ cognitive loads and deliver better security, overall.
Digital Fraud Affected 38% of All Americans on Government Benefits
While larger institutions are the biggest targets for financial crimes, regular people are often victims as well. In the US alone, digital fraud directly affected 38% of all Americans on government benefits in Q1 2022. Fraudulent activity involving health insurance, tax returns, retirement funds, and unemployment benefits was especially common, affecting anywhere from a third to close to half of those receiving these government benefits.
Younger Millennial and Gen-Z Individuals Are the Most Likely Victims of Fraud
Breaking the usual perception of older individuals being more vulnerable to scams, data released by the US Federal Trade Commission suggests that individuals in their 20s are the most likely to report fraud.
However, this may be because younger digital natives use banking platforms more often and are better able to identify and report scams and other fraudulent activity.
Interestingly, the same data also shows that older individuals do tend to lose more money for each incidence of fraud.
As the world continues to transition to digital banking and finance, it will become increasingly important for institutions, businesses, and individuals to understand how online financial crimes can be prevented.
Banks, in particular, have to continuously vet their AML compliance to ensure that the impacts of financial criminals on their organizations and their clients are effectively mitigated.
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