Bank fraud in financial services: Strategies for compliance and L&D teams

Quick summary

• Banking fraud has significant consequences, with almost £1.2bn stolen in 2024 through different types of fraud: identify theft, account takeover, and wire, card and insider fraud
• Preventing fraud can be challenging for banks as they become more technology-driven and because fraudsters are becoming more sophisticated
• Firms need to prioritise good training and awareness to ensure employees are aware of the risks and know how to deal with them  

Bank fraud is one of the biggest threats facing the financial services industry today – putting firms at risk of significant financial losses, penalties and reputational damage. Figures show cybercriminals stole £1.17bn through banking fraud and scams in 2024, with £451m of this accounting for Authorised Push Payment (APP) fraud, where the victim has been tricked into handing over money. 

Compliance and L&D teams are at the forefront of fraud prevention, setting and enforcing policies and helping employees to develop the skills and knowledge to identify and act on risks. 

All employees must be vigilant to the growing sophistication of fraudsters, who are using technologies like AI, including deep fakes, to commit fraud at scale.

What we'll cover:

• What type of bank fraud do employees need to be aware of?
• Why is preventing fraud a challenge for banks?
• What fraud prevention strategies should banks use?
• How can technology combat bank fraud?
• Want to learn more about Fraud?

What type of bank fraud do employees need to be aware of?

Remote purchase fraud, where customers disclose passcodes to fraudsters, is on the rise, with banks stating 7,000 incidents take place everyday. Fraudsters are becoming more sophisticated and targeting one-time passcodes (OTPs), so they can authorise online payments. 

There are five main types of fraud employees in financial services firms can encounter in their work. As well as understanding what they are, they also need to know how to prevent them.

1. Identity theft

Fraudsters steal personal information to access bank accounts, apply for credit in someone else's name, or commit other fraudulent activities.

How to prevent it: Robust identity verification processes.

2. Account takeover

A fraudster gains unauthorised access to a bank account and carries out transactions as if they were the legitimate account holder. 

How to prevent it: Strong customer multi-factor authentication (MFA).

3. Wire fraud 

The use of electronic communications to defraud individuals or financial institutions. Fraudsters may send fake wire instructions, leading to the transfer of funds to accounts under their control.

How to prevent it: Rigorous verification processes.

4. Card fraud

Includes activities such as cloning debit or credit cards, using stolen card details for online purchases, or making unauthorised transactions.

How to prevent it: Implement advanced fraud detection technologies and educate customers on safe card use. 

5. Insider fraud

Fraud committed by employees within the bank. This could involve embezzlement, unauthorised transactions, or misuse of confidential information.

How to prevent it: Enforce strict internal controls and monitor employee activities closely.

We recently surveyed over 80 business leaders, with over a third (34%) believing the biggest potential risks for employee fraud were because of controls and checks that aren’t always followed. This was followed by relying too much on trust (16%) and having a culture where employees are hesitant to speak up (16%).

Why is preventing fraud a challenge for banks?

Recently a UK-based widower lost £85,000 through an online romance scam and called for UK banks to do more to protect vulnerable people. 

“Our advice is to never send money to someone you haven't met in real life and to always listen to advice or warnings about scams from your bank.”
- Halifax spokesperson (Source: BBC)

The dynamic and evolving nature of fraud makes detection and prevention an ongoing challenge for banks. This is why employee training plays a critical role in managing the fraud, which has become more complex for the following reasons:

1. Growth of technology-driven fraud

As banks adopt more digital services, they also become targets for technology-driven fraud. Cybercriminals constantly develop new methods to exploit vulnerabilities in online banking systems, making it crucial for banks to stay ahead with the latest security technologies.

2. Changing regulatory compliance

Banks are required to comply with a myriad of regulations aimed at preventing financial fraud, including Anti-Money Laundering (AML) laws and Know Your Customer (KYC) requirements. Keeping up with these regulations while effectively managing fraud risk can be a complex balancing act.

3. Erosion of customer trust

Fraud incidents severely damage a bank’s reputation and erode customer trust. Even a single high-profile case can have long-term consequences for a financial institution’s brand image and customer loyalty.

What fraud prevention strategies should banks use?

To reduce bank fraud risks, firms must prioritise employee training and awareness. The Financial Conduct Authority (FCA) states, “employees need appropriate training before working with a reduced level of supervision.” It also recommends implementing a training plan for the year and regularly evaluating it.

Mandatory training

Comprehensive bank fraud detection training should be mandatory for all staff, particularly those in customer-facing roles and those with access to sensitive information. Training should cover the latest fraud tactics and how to recognise and report suspicious activities.

Advanced fraud detection systems

Using AI and machine learning, banks can detect unusual transaction patterns and flag potential fraud in real-time. These systems continuously learn from new fraud attempts, making them increasingly effective over time.

Robust KYC and AML procedures

This includes verifying customer identities, monitoring transactions for suspicious behaviour, and ensuring that all regulatory requirements are met.

Enhanced customer authentication

Multi-factor authentication (MFA) and biometric verification add extra layers of security to customer accounts, making it much harder for fraudsters to gain unauthorised access. Banks should encourage or require customers to use these enhanced security measures.

How can technology combat bank fraud?

Banks must take advantage of new and emerging technologies to stay ahead in the fight against fraud. Below are just a few examples of how they can be deployed.

Use AI and machine learning to speed up fraud detection

AI and machine learning can be used to analyse vast amounts of data to identify patterns indicative of fraudulent behaviour. This allows banks to automate their fraud detection processes and proactively identify potential threats quicker.

Implement robust cybersecurity measures

Strong cybersecurity protocols help protect banks against fraud. This includes regular system updates, penetration testing, and the use of encryption to safeguard sensitive data. Cyber security awareness training for employees is also essential since human error is often to blame for breaches (e.g. clicking on a link that leads to data loss).

Consider blockchain technology

Blockchain offers a secure and transparent method for recording transactions, making it difficult for fraudsters to manipulate data. While still emerging in mainstream banking, blockchain holds promise for enhancing security and reducing fraud.

Bank fraud in financial services: FAQs

What is fraud in financial services?

Fraud in financial services is where criminals attempt to gain money or access to financial information, through organisations like banks, credit unions, insurance firms and more. Fraudsters often target the financial services sector because companies handle sensitive financial data and big sums of money.

What are the common types of financial fraud?

The five main types of financial fraud include:

1. Identity theft
2. Account takeover
3. Wire fraud
4. Card fraud
5. Insider fraud

Criminals are deploying different tactics to gain entry to bank accounts or convince customers to hand over money. They also regularly target banking employees, which is why fraud prevention training is so important.

Who is responsible for bank fraud?

Both banks and customers have a shared responsibility to prevent and detect fraud. For example, customers need to be cautious when sharing financial details, while banks should flag and investigate any unusual transactions. Banks have been given greater powers by the government to investigate suspicious payments, while the Financial Ombudsman Service deals with any customer complaints relating to the handling of fraud.

Want to learn more about Fraud?

Our Essentials Library contains e-learning content designed to help organisations meet fundamental compliance requirements. If you are looking for focused training, our Fraud Prevention Training Package and Financial Crime Training Package also offer a complete solution for your compliance programme. Courses in our libraries include:

• Fraud Prevention Training Course
• Identity Crime Training Course
• Financial Crime Prevention Training Course

We've also created a comprehensive AML & CTF roadmap to help you navigate the compliance landscape. If you would like to access leading insights and compliance tips, you can browse our free resources by topic to find guides, modules, compliance bites and more.