NOTO: Why Fraud is Now Your Financial Institution’s Competitive Differentiator

Tristan Prince from NOTO and Robert Booker from Opus Advisory Group dive into the exponential cost increase facing firms, driven by AI-enabled fraud.

Fraud used to be a manageable problem, a small “blip” on a financial statement that mainly affected high-net-worth people. Now, however, the volume and frequency of fraud has changed everything and is now the UK’s largest crime, accounting for over 40% of registered offenses. This massive shift means that for financial organisations, fraud is no longer just a risk to be contained, but a competitive differentiator. Customers will judge an institution based on how it treats them after they’ve been victimised, directly impacting customer perception and the bottom line.

NOTO notes that an organisation expecting 100,000 applications could suddenly be hit with 10 million and this surge in volume means that for companies using fraud prevention systems licensed per transaction or application, their operational costs for technology, vendors, and even staff will grow exponentially, even if their core business isn’t. Fraud managers are currently struggling to keep these costs within budget. New legislation from the PSR, which includes reimbursement rules for APP scams, also has a direct and serious financial impact on profitability through potential fines and mandatory reimbursements.

The current reimbursement scheme generally splits the liability 50-50 between the sending and receiving institutions when a customer is defrauded. This shared liability is designed to encourage mutual responsibility across the industry to prevent criminals from using financial products and services for money laundering and other illicit activities. However, the conversation moves to how the Economic Crime and Corporate Transparency Act (ECCTA) is tightening accountability.

Booker explains that the ECCTA outlines six reasonable procedures to prevent fraud, the most important of which is establishing tone from the top.

Financial organisations can no longer rely on simple spot fixing or buying a new piece of “shiny kit” to satisfy investigators like the Serious Fraud Office (SFO). Instead, accountability must be a pervasive, business-wide culture which involves risk-based fraud assessments and visible championship of fraud prevention at the board level.

Booker stresses that the culture must come from the board and senior leadership and cannot be pushed up from lower or middle management. This top-down approach must include creating and publicising whistleblowing policies to encourage staff to report fraud without fear. In high-pressure scenarios, junior staff can be bullied by senior officials to process payments without question. The new culture, reinforced by education, awareness, and training, needs to encourage reporting and ensure there are consequences for those who breach that culture.

The long-term success of the ECCTA will be measured by a low number of cases, which demonstrates industry-wide compliance and adds that a new government fraud strategy is focused on setting up a financial crime centre where sectors like telecoms, finance, policing, and government will collaborate and share data to minimise fraud and improve technology.

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