July 10, 2023 | Amanda Khatri
Estimated reading time: 5 minutes
The battle against fraud: SEC implements anti-fraud measures
In today’s digital age, fraud is a persistent and concerning issue. Not only does fraud divert resources away from the economy into illegal activities, but it also increases distrust in financial services and can cause significant financial losses for individuals.
Following the recent collapse of major banks such as Signature, Silicon Valley, and First Republic in the United States, a wave of uncertainty has swept over customers, eroding their trust in the banking sector. Moreover, the discontent towards these same financial institutions has increased because of higher interest rates and mortgage rates. Consequently, this presents a pivotal opportunity for banks to showcase the safety and security of their services.
UK Finance’s latest fraud report, covering the first half of 2022, found that nearly £610 million was illegally obtained by criminals through fraud. Of this total, unauthorised fraud losses were £360.8 million and authorised push payment (APP) fraud losses were £249.1 million. Most fraud instances are orchestrated through “online and technology platforms,” which require increased oversight to tackle the issue at hand.
What is fraud?
Fraud is “an act of intentional deception designed to exploit a victim.” In other words, when an individual is intentionally deceived by a fraudster to illegally obtain either personal information, assets, or funds from them. This could include false claims with credit card companies, phishing, tax evasion, benefit fraud, money laundering, identity fraud, bribery and so on.
SEC implements anti-fraud measures for security-based swaps
The Securities and Exchange Commission (SEC) regularly enforces against financial institutions and individuals to ensure compliance with the prevalent regulatory environment. Fraud is cited repeatedly in many of these enforcement actions. Every other month, there is a new enforcement action associated with fraud.
For example, on 22 June 2023, investment fund founder, William K. Ichioka was fined $25 million for making false claims about his investing success and promising large returns. In reality, he was using funds from investors on gambling or luxury watches, cars and a penthouse apartment.
Monique C. Winkler, Director of the SEC’s San Francisco Regional Office said, “This case highlights the SEC’s commitment to holding bad actors accountable and protecting the integrity of our markets.
On 7 June 2023, the SEC implemented rules to prevent security-based transaction fraud and to prevent unnecessary influence over the chief compliance officer (CCO). SEC Chair, Gary Gensler commented, “Any misconduct in the security-based swaps market not only harms direct counterparties but also can affect reference entities and investors in those reference entities.”
He went on, “Given these markets’ size, scale, and importance, it is critical that the Commission protect investors and market integrity by helping prevent fraud, manipulation, and deception relating to security-based swaps. Today’s set of rules will do just that.”
The fraud pandemic
Many of the UK’s largest banks – NatWest, Lloyds, Barclays, HSBC UK, Starling, Hadelsbanken – have requested that BigTech companies like Meta (formerly known as Facebook) start to take some accountability for the increasing fraud pandemic.
In a recent letter to Prime Minister, Rishi Sunak, the chief executives at the above-listed banks highlighted the need for tech firms to contribute to refunds for fraud victims and actively participate in preventing scams. They also proposed an establishment of a public register that reveals the scale of BigTech firms’ failure in preventing scams.
Online fraud has particularly evolved in recent years as more and more people embrace technology in all aspects of their lives – work, social, financial, and so on. As technology continues to advance, BigTech firms will play an important role in facilitating financial transactions and interactions.
Banks have urged that BigTechs should offer refunds to victims of fraud on their platforms and actively work together to prevent such scams. This in the long run will safeguard financial services and ensure increased confidence in the industry.
The need for tighter controls
Despite international initiatives such as the Financial Action Task Force (FATF) and regional regulations like the European Union’s Payment Services Directive (PSD2), fraud remains an ever-growing problem worldwide and criminals continuously adapt their methods of fraud. Criminals tend to avoid the “confines of the banking system” and target customers directly. The Global Compliance and Fraud Prevention report has outlined that 92% of consumers are worried about becoming a victim of identity fraud in the future. This demands more effective regulatory measures to combat fraud, prevent scams and protect individuals and businesses.
The Managing Director of Economic Crime at UK Finance, Katy Worobec said that “the level of fraud in the UK is such that it must be considered a national security threat.” She goes on, “This is why it is key that other sectors work with us to fight fraud as it remains a persistent threat to businesses, consumers and the growth of the economy.”
Fraud further increases mistrust in financial services during a time when consumers are struggling with the cost-of-living crisis and inflation. As more users use digital platforms for financial purposes, it’s important to ensure safety and fair service to rebuild trust.
Stay ahead of emerging regulations on fraud
As the battle against fraud continues, regulators and governments are continuously looking to improve their regulatory frameworks to combat financial crime. To make sure your business never misses an update, use regulatory change management like CUBE.
Gain full, extensive control over the global realm of financial crime regulations by utilising CUBE. This innovative solution employs advanced artificial intelligence methods to categorise, monitor, convert, and align relevant regulatory information with your business framework, providing a comprehensive and customizable inventory.
By adapting to fraud regulation changes quickly, your firm can proactively prevent fraudulent activities.
Discover how CUBE can assist your firm in staying compliant with fraud regulations.