Ensuring Compliance and Preventing Losses Due to Fraud in the Banking Sector

  • Richard Marley
  • October 25, 2022
  • 8 minutes read
  • 1496

Banks are thought to be the most important part of the financial system, playing a vital role in global economies. Almost all segments of society are linked to the banking industry in some way which is why there is a huge influx of revenue in this sector. Generally, banks accept deposits from users and make a much higher amount available for investments and loans. In the modern digital era, it is near to impossible for any country to run its financial operations without an effective banking system and this is why powerful jurisdictions work hard to create the best financial system.

Although the banking sector has provided users with a lot of conveniences, it has also exposed them to risks of financial crime, especially identity theft, money laundering, and terrorist financing. The majority of banks have implemented stringent measures to counter scams, but the crime ratio is increasing every year, raising concerns for regulatory authorities globally. It is estimated that fraud in the banking sector increased by 8% in 2021 compared to the previous year which has put the overall system in dire need of a robust verification system.

Fraud in Banking Sector –  An Overview [2022]

With booming technology and digital proliferation, the banking sector utilizes mobile apps and websites to interface and service consumers and businesses alike. Users now prefer to perform daily financial transactions through their smartphones and computers instead of going to bank branches. Especially during the COVID-19 pandemic lockdowns, the use of remote services dramatically increased as the whole world shifted towards digitization. Although digital models have provided users with ease of use,  they’re also associated with a higher amount of identity theft and money laundering. Scammers usually exploit the banking sector due to the high amount of exploitative activity and users, unfortunately, bear the loss in the form of financial damages.

Bank fraud is generally carried out in a systematic way where hackers steal the details of sophisticated users and take over their accounts, performing illicit transactions. These stolen identities are also used to carry out other illicit activities such as money laundering and terrorist financing, which further aid criminals in getting away without leaving any trail. In the second quarter of 2022 alone, the global banking sector stood at 7.3 trillion euros, highlighting the need for efficient identity verification services which will not only restrict criminals while onboarding new users but also track and report suspicious activities.


Financial Loss in the Banking Sector and Law Enforcement’s Critical Role

On a global scale, fraud in the banking sector is rising at an unprecedented level. Regulatory authorities and financial watchdogs worldwide are alarmed because criminals are using evermore sophisticated techniques to steal user credentials, including account takeover, biometrics theft, and phishing. Law enforcement authorities across several countries are countering multiple cases of identity theft and financial crime, working hard to bring them under the law.

Criminal Gang Sent to Federal Prison for Bank Fraud Scheme

Broward County Police in Florida arrested a criminal gang that was involved in defrauding various banks through a variety of different sophisticated techniques. It took more than one year for law enforcement agencies to track down all the illicit transactions and send the criminals behind bars. In this instance, criminals were sentenced to five years in jail, and fined $98,733d. In the official statement, Broward County Police Chief vowed to counter scammers involved in digital fraud and bring them under the law enforcement umbrella.

Organized Criminal Gang Sentenced for Involvement in £1.1 Million Scam

UK law enforcement authorities conducted several raids and arrested two criminals who were suspected of being involved in bank scams. The investigations further revealed that they were sending fake messages to customers pretending to be bank officials and convincing them to make investments in illicit accounts. The criminals collected £1.1 million this way and ran away without leaving a trail. Police departments in the UK investigation lasted over a year and ultimately caught the culprits, who have now been sent to jail for 5 years.

Global Regulatory Authorities Monitoring Banking Sector

All global regulatory authorities, particularly Financial Action Task Force (FATF), Interpol, and European Union (EU), are guiding member states to implement stringent identity verification measures in the banking sector. In the wake of this guidance, almost all major jurisdictions have legislated new regulations and are exercising their authority to counter financial criminals.


National Bank Act (NBA),  Federal Reserves Act (FRA), and Bank Secrecy Act (BSA) outline the legal framework to monitor the banking sector. As per all these acts, any attempt to abuse the banking system is considered a criminal offense punishable under the law. The BSA suggests imprisonment of up to 30 years, depending on the nature of the crime, and US law enforcement authorities have successfully tried a large number of bank criminals under this law.


Section 380 (1) of the Criminal Code Canada considers any effort to defraud the banking system through fake cheques or hacking as a very serious offense. It has been clearly stated in the law that any person who will make an effort to commit any scam related to the banking sector will be liable to the law, resulting in imprisonment of up to 15 years, along with hefty fines.


The Australian government has taken strict actions to curb crimes prevailing in the banking sector. Law enforcement agencies have created an online portal for individuals and banks for reporting any type of cyberattack, which has remained very helpful in arresting criminals. As per Australian law, it is illegal to get involved in any activity leading to identity theft of any sort whatsoever.

Ensuring Compliance and Eradicating Fraud in the Banking Sector Through Robust KYC Solutions

By looking at the nature of prevailing crimes in the banking sector, it becomes evident that these scams usually originate due to a weak identity verification infrastructure. Criminals use stolen identities and successfully onboard financial systems, further inflicting undeserved losses on users. The majority of banks also lack an effective system of periodically checking user data which encourages customers to alter their details after entering and staying invisible to security checks. It is more timely now than ever before r to implement stringent Know Your Customer (KYC) checks which will not only verify the true identities of the users but will also help banks have stringent ongoing monitoring. Only through efficient identity verification measures, prevailing fraud in the industry can be halted proactively.

Key Takeaways

Identity fraud and other financial crimes pose a huge threat to the banking sector as a whole, which can be effectively addressed through stringent compliance measures. Banks are the most crucial part of the global economy, and it is in their higher interest to invest in KYC measures securing their customers’ confidential information.

Shufti Pro’s AI-native state-of-the-art identity verification services present the most viable set of solutions for banking institutions to trace criminals and report them to law enforcement authorities. Shufti Pro’s KYC solutions authenticate 3000+ documents in more than 150 languages while providing verification in seconds with a ~99% accuracy.

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