Combating Fraud Risk in Payment Systems

2 Defining Fraud..a deliberate act of omission or commission by any person, carried out in the course of a banking transaction or in the books of account maintained manually or under computer system in banks, resulting into wrongful gain to any person for a temporary period or otherwise, with or without any monetary loss to the bank. ( Report of the Study Group On Large Value Bank Frauds issued by RBI)

3 Payment Systems Key participants Reserve Bank of India CCIL, Stock Exchanges Clearing Houses Banks Other entities Mission: To ensure that all the payment and settlement systems operating in the country are safe, secure, sound, efficient, accessible and authorised Apex body: The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS)

4 Frauds in Payment Systems Paper based Cheques Dividend/Interest warrants Demand Drafts/Pay orders Electronic CTS (Cheque Truncation System) RTGS/NEFT ECS – Debit and Credit ATMs Credit cards including prepaid Internet Banking Mobile Banking

5 Instrument frauds Forgery Colour photo copy Colour photo copy with MICR coding Scanned image printed on security paper Large value cheques issued without balance in account

6 Electronic frauds Fraudulent RTGS/NEFT requests Physical requests Through internet banking Speedy dissemination of fraud funds to various banks Withdrawal across the country through ATMs or cheques ECS frauds Changing account numbers for credit/debit

7 Channel frauds ATMs Social engineering Skimming Unauthorised reversals Internet Phishing Vishing Mobile Banking

8 The challenge to a Bank… Financial Loss Brand Image & Reputation Customer confidence Regulator confidence Shareholder confidence

Combating the Challenge……… The TAP concept : Technology Solutions Awareness/Training Policy Changes

10 Technology & fraud mitigation Upgrading reader sorter machines UV integration Reading of security features Sorting suspicious instruments into a different pocket Transaction monitoring New accounts Accounts with unsatisfactory conduct Clearing accounts Transaction monitoring in automated channels Internet banking ATMs Mobile

11 Awareness Customer awareness Newspapers & other media SMS alerts s Staff awareness Training programmes Practical Online Culture building Rewarding fraud preventers

12 Policies for Risk Mitigation IT Security Policy Outsourcing Policy Employee Code of Conduct Whistle Blower Policy Fraud Policy

13 Fraud governance Fraud governance structure Detailed fraud policy Reporting to Board, Special Committee Responsibility of senior management Staff accountability for frauds Fraud is not the responsibility of one department, it has to be owned across the organisation Fraud loss limits Triggers for review of product features Regular review of fraud prone areas by Special Committee

Anti Fraud Policies & Procedures Fraud Vulnerability Reviews Fraud Awareness Training Fraud Risk Assessment Whistle Blower / Report a Fraud Proactive Fraud Prevention & Detection Post Event Analysis Reviews & Investigations Data Mining & Analysis Building Blocks in Fraud Management

15 Thank you