East Asia is one of the world’s most diverse and vibrant regions. Its economy is also the most dynamic. With 6.5% growth in 2015, according to the World Bank, it outperformed the rest of the world. Despite the drag that China’s slowdown is expected to pull on the other economies of the region, they still represent a massive opportunity for businesses across the globe. With opportunity comes risk. Here’s the top five fraud and anti-money laundering (AML) risks that could face businesses wanting to expand in the East Asian region:
1) Isolated systems create risk
Asian businesses tend to manage fraud and money laundering data in isolation. This stops them seeing the whole customer, and can increase their exposure to crime. It can also lead to ‘false positives’ and block good customers or transactions by mistakenly flagging them as risks. Financial institutions must meet counter-terrorism financing and AML regulations without affecting good customers. PwC’s 2016 Global Economic Crime Survey suggests that current system alerts fail to spot 50% of these incidents. It is not enough for businesses to consider the data contained in a single, local, system. They need to bring together customer data from multiple systems and look at all the data available to them.
2) Reluctance to share data holds back progress
In Europe, fraud bureaus pool ‘bad’ data from organisations across different sectors. Asia, on the other hand, has a cultural reluctance to expose possible weaknesses in internal systems. This means that openly sharing information about the level of exposure to fraud is still rare. Things may be changing. Nearly 100 South Korean firms share known fraud data in an active fraud bureau which we run with the Korean Credit Bureau. This recently exposed a Thai taxi driver who had defrauded 17 different organisations by taking out $350k in loans. The ROI for organisations willing to share their data within a closed, tightly governed community of this kind can be as much as 75 to 1. But it does need a strong spirit of collaboration.
3) China’s slowdown will increase risk
When economic growth slows, financial crime tends to rise. Reduced investment in systems and resources exposes organisations to risk. As the criminals become more and more sophisticated, it’s important to stay abreast of the latest trends and threats, and respond accordingly. Across Asia, insider fraud has climbed (up 9% from 2014 levels according to PwC), with the highest growth among senior management. It’s a totally different picture compared to Europe and North America. There, frauds are more likely to come from external, rather than internal, groups or individuals. When organisations are looking at their fraud and AML processes and systems, they must ensure they also include robust employee screening and monitoring.
4) A shift to identity-based application fraud
The take-up of ‘chip and pin’ cards in the region has increased security for the two billion people who use them. Fraudsters unable to carry out transaction frauds using stolen or cloned cards will look for other weaknesses to exploit, like false account opening.
5) Increasing disruption to business models will introduce new risks
Robust checking of application data is essential, and needs to involve more than just identity details and credit history. Has the person applied for other products elsewhere in the organisation? Are we sure they are not on any AML sanctions lists? Has any of their data been identified as part of an incident elsewhere – including within partner organisations? (That’s where fraud bureaus come in.) Doing this quickly over the Internet or a mobile channel presents a major challenge to fraud teams. They are already under pressure from commercial colleagues who want to sign up customers quickly but organisations need to adopt a more holistic approach to be sure of covering every angle.
GBG delivers fraud, risk and compliance solutions through identity data intelligence. GBG’s global FX client base focus on the GBG’s solutions that support global AML and KYC through identity verification and ongoing monitoring. Click here to learn more.