Tag: MaRisk

Innovation & Business Jochen Werne Press & Publications

Frontline Defense: Outsmarting Fraudsters and Shaping the Future of Fraud Prevention

Jochen Werne December 26, 2023

The rise of AI and ML in fraud prevention can lead to a new era of digital trust and compliance

Author: Jochen Werne / 26.12.2023

In an era marked by rapidly advancing technology and increasing global interconnectivity, the fight against online fraud has become a paramount concern for financial institutions, businesses, and regulators worldwide. Part of my professional work revolves around understanding and mitigating the risks associated with financial fraud. The Experian Forrester Fraud Research Report 2023, which was recently released, sheds light on the escalating threat of online fraud and the evolving strategies to counter it, particularly through the use of Machine Learning (ML) and Artificial Intelligence (AI).

The report’s findings are stark: a 74% increase in fraud losses in Germany, reflecting nearly the global increase rate. This surge is not just a statistic; it’s a clear indication of the sophisticated and pervasive nature of modern financial fraud. Companies across various sectors are feeling the impact, with financial services bearing the brunt. This trend is deeply concerning not only for the economic health of individual businesses but also for the broader stability and security of the financial system.

From a geopolitical perspective, the rise in online fraud is a multifaceted challenge. It’s a threat that transcends borders, affecting relations among nations, and has become a significant factor in international policy and security discussions. Countries, including Germany, are increasingly recognising the need for cooperative international efforts to combat this scourge. The geopolitical implications are profound, as fraud undermines economic stability and erodes public trust.

Turning to the German banking sector, the issue of compliance and reputation risk under the framework of Minimum Requirements for Risk Management (MaRisk) is particularly pertinent. Banks are finding themselves at the forefront of the battle against online fraud, necessitating robust risk management strategies that align with regulatory requirements. Under MaRisk, the mandate is clear: implement effective, comprehensive controls to detect, prevent, and manage fraudulent activities. The reputational risk for banks and their board members is immense; a single lapse can lead to significant financial losses, legal consequences, and lasting damage to customer trust.

In this challenging landscape, AI/ML-based fraud prevention methods stand out as beacons of hope. These technologies offer the promise of enhancing detection capabilities, reducing false positives, and adapting swiftly to new fraudulent tactics. However, their implementation must be undertaken with a clear understanding of the ethical implications and potential biases inherent in AI systems. As we embrace these technologies, we must also commit to transparency, accountability, and continuous improvement to ensure they serve the interests of all stakeholders fairly and effectively.

Despite the challenges, I believe there is a path forward that balances the need for security with the imperative for innovation and growth. The key lies in embracing a multi-faceted approach to fraud prevention that leverages the best of technology, human expertise, and regulatory compliance. ML, with its ability to learn and adapt to new patterns, offers a powerful tool in this fight. However, its effectiveness hinges on the quality of data, the integrity of algorithms, and the wisdom of the humans who guide its evolution.

The German companies surveyed in the study are acutely aware of the challenges and opportunities presented by AI/ML in fraud prevention. The overwhelming majority recognise the efficacy of ML-based approaches and anticipate their increasing dominance in the field. Yet, they also acknowledge the hurdles, including the costs associated with deploying advanced fraud prevention solutions, the need for continuous adaptation, and the importance of addressing the ethical considerations of AI use.

In my experience, one of the most critical factors for success in this endeavour is collaboration. Tackling online fraud is a collective effort that requires the involvement of businesses, regulators, technology providers, and consumers. By working together, sharing knowledge, and fostering a culture of innovation and vigilance, we can stay ahead of fraudsters and protect the integrity of our financial systems.

Another vital aspect is education and awareness. Both consumers and employees must be informed about the risks of online fraud and the steps they can take to prevent it. Regular training, robust policies, and a culture of security are essential in creating a resilient defense against fraud.

Finally, we must recognize that the fight against fraud is an ongoing battle. As technology evolves, so too will the tactics of fraudsters. We must remain agile, constantly updating our strategies, investing in new technologies, and adapting to changing regulatory landscapes. This dynamic approach is not just about defense; it’s about building a stronger, more secure future for everyone.

The Experian Forrester Fraud Research Report 2023 is a call to action. It highlights the urgent need for enhanced strategies, stronger collaboration, and a steadfast commitment to ethical, innovative solutions in the fight against online fraud. As leaders in the financial services industry, we have a responsibility to take the helm, steering our organisations towards safer waters in this tumultuous sea of digital threats. By harnessing the power of AI/ML, prioritising ethical considerations, and fostering a culture of collaboration and continuous learning, we can not only mitigate the risks of online fraud but also pave the way for a more secure, prosperous, and trustworthy financial ecosystem.

#fraudprevention #dataliteracy #machinelearning

Innovation & Business Jochen Werne Press & Publications

Publication: For the good of all – Why standards are so important

Jochen Werne February 26, 2021

gi-Geldinstitute published „For the good of all – Why standards are so important“, A plea for future-oriented minimum standards in the CIT industry, underlining Prosegur‘s frontrunner role as resilient infrastructure provider in the security and cash management industry.

Find Original in German HERE. Translation generated with deepL.com

A plea for future-oriented minimum standards in the CIT industry. The neighbouring banking industry (and often the customers of CIT companies) is already protected by standards such as MaRisk and BAIT. However, cash-in-transit companies that work closely with their customers (banks) have less high standards in IT, whereby the industry is becoming increasingly digitalised. Prosegur argues for higher standards across the CIT industry.

Emeritus professor of literature Hans-Dieter Gelfert, who has spent many years researching German, British and American mentalities, expressed in an interview with Deutsche Welle that the orderly society of modern Germany has a long genesis. “Order is one of the sacred words in Germany, and that has something to do with the German emphasis on security as opposed to freedom,” he said. “For the last thousand years, security has always been the supreme value and order is a mainstay of security.” Part of Germany’s success is built on norms. It is not without reason that the encyclopaedia “Brands of the Century” lists more than 200 German brands such as Hipp or Tempo as examples of entire product categories. The entire title is: “German Standards – Brands of the Century”. Aha, standards then – a coincidence?

Without rules, norms or minimum standards, a modern society would be almost inconceivable. They structure, make things comparable and act as a control mechanism. Cultural imprints and regional differences come into play in their design. For example, many an EU citizen groans about the General Data Protection Regulation when a form has to be filled out for consent to the use of personal data. On the other side of the Atlantic, people certainly pay respect to the GDPR for the standards it sets. Standards that reflect the values of an enlightened Europe.

Own rules in the business world

Beyond social norms and local legislation, there are other rules in the business world. There is hardly an industry that has not already given itself a catalogue of minimum standards. This is an advantage for many, because the complexity on the supply side is often reduced for those asking. But the question must be allowed whether minimum standards are sufficient and whether they all focus on the well-being of customers and society. Too often the focus is on the providers. Yet there are standards that need to be established today in order to prepare for future challenges.

Prosegur is committed to more than minimum standards to position the entire industry for the future and to ensure society’s trust in this system-critical industry. An industry that does nothing less than ensure the unrestricted supply of central bank money to the population and the safe return of several million euros of cash income daily to the accounts of businesses to ensure their liquidity.

A look at the customer environment reveals that the related banking industry is leading the way: with MaRisk (Minimum Requirements for Risk Management) or BAIT (Bank Supervisory Requirements for IT), credit institutions have positioned themselves for the future. Since banks usually cooperate with a cash-in-transit company, it is only logical for Prosegur to apply these already existing requirements in an identical manner to its own business operations today and consequently to demand rapid implementation from all providers of cash and valuables transport.

All players operating in such an important part of our economic life must keep their eyes on the future and never cling to the status quo. Today, topics such as digitalisation and environmental protection naturally belong in the programmes of sustainably oriented companies. Every organisation needs courage, creativity and a willingness to invest in finding a digital language for analogue solutions. This fact is of particular importance in the Corona pandemic, because it acts as an accelerator for the global digital transformation.

Politicians underlined that they have recognised this on 9 December 2020 with the BMI’s draft bill for a second law to increase the security of information technology systems. But even before the draft becomes law, the following applies to Prosegur: the further development of current standards, investment in sustainable technologies and personnel as well as in the certification of processes and models must absolutely be in the interest of every serious money and value service provider already today.

Resilience through standards and digitalisation

It is essential to arm oneself against all kinds of threat scenarios – known and new, present and future – and to become resilient against external shocks. To be resilient so that, as a critical infrastructure, citizens can access money even in crises or exceptional situations. And to offer support to other critical infrastructures to also become resilient in order to avert supply bottlenecks for the population in cooperation. Prosegur consistently pursues this maxim, among other things with the smart cash procedure, in which cash receipts, for example in the supermarket or pharmacy, are deposited in a smart safe, where they can be credited to the business account via Early Value. Independent of the physical collection of the money, the company can use it to do business. A lack of liquidity does not become a showstopper for supermarkets and pharmacies in times of crisis. They remain open and the supply of goods and medicines is maintained. In the impulse paper “Resilient pioneers from business and society” of the German Academy of Science and Engineering (acatech), Prosegur Smart Cash was presented in December 2020 as a resilient concept for success.

Standards create resilience. So what standards should the cash and cash-in-transit industry additionally orient itself to? In Prosegur’s opinion, the standards of the credit institutions with which the cash and valuables transport industry cooperates on a daily basis. Not only in terms of their own resilience, but also in order to be a true partner for customers with their very own challenges in the low and negative interest rate environment, in the digital transformation and in the climate crisis. Then the players in this industry not only transport, process and store values, they also embody them and prepare to take on even greater responsibility in the “cash cycle” value chain.