THE Bangladesh Bank heist in February this year really brought home the role of technology in committing fraud.
Although the use of technology including malware to commit crime or fraud is not new, the case of Bangladesh Bank made people sit up because of the amount that was lost.
US$101mil was stolen by hackers from the Bangladeshi central bank’s account with the Federal Reserve Bank of New York. To-date, only US$38mil has been recovered. The hackers tried to steal US$951mil in total but the New York Fed managed to block US$850mil worth of transactions.
The hackers somehow managed to bypass the cybersecurity safeguards in place in Bangladesh Bank as well as that of the SWIFT global payments network. There could even have been involvement among employees of the central bank.
Recently, bitcoin, the digital currency, saw more than US$65mil stolen from BitFinex, a Hong Kong-based exchange.
This is not the first time bitcoin has been targeted and not even the largest. MtGox, a bitcoin exchange based in Tokyo, saw US$460mil stolen in 2014 and subsequently collapsed.
TootPay Sdn Bhd managing director Balvinder Singh (pic) says using software or applications is still the most effective way of preventing fraud. Balvinder together with other technology stakeholders and experts concur that corporate fraud usually happens with the connivance of employees/owners.
Experts say for banks and other financial-services firms, password-protection and internal controls remain the first line of defence although financial technology (fintech) startups often cite the conservatism of local banking regulations on cybersecurity.
MoneyMatch co-founder Naysan Munusamy says even though the current regulatory framework covers a vast area, more initiatives should be conducted by the authorities to improve the cybersecurity landscape.
This will change soon as Bank Negara, which formed an experts’ committee on financial technology in June, also issued a discussion paper on fintech regulatory sandbox recently.
The sandbox, which is a controlled environment in which technology innovations can operate, will allow financial institutions and fintech companies to experiment with fintech solutions in a production or live environment, subject to appropriate safeguards and regulatory requirements.
This will eventually lead to the appropriate rules and regulations to be adopted by the industry.
Given that Malaysia is fast moving to paperless transactions and the volume is growing, the increase of fraud will grow in tandem. Wolters Kluwer’s risk practice director for the Asia Pacific region, Tham Soon Kit, says the higher the volume of transactions, the higher the risk that these transactions are exposed to fraudulent activities.
He tells StarBizweek that heighten vigilance among financial institutions against suspicious transactions is important, but so is developing best practices among regulators, especially with respect to money-laundering activities.
“Given such an environment, financial institutions should closely monitor and adhere to the latest anti-money laundering regulations, including its tech dimensions, and cybersecurity laws; lest they fall short and have to incur hefty fines or penalties,” Tham says.
He adds that the “know-your-customer” rule in banking helps prevent fraud and helps to validate customer behaviour as well as detect suspicious activities among technologically-facilitated non face-to-face transactions.
Malayan Banking Bhd group chief risk officer John Lee says hackers are now more organised, adding that failure in any of the pillars – technology, process and people – can have a huge impact to any bank.
Of these pillars, he says that people remain the weakest link, pointing out that investigators believe the Bangladesh Bank heist was likely done with inside help.
Lee believes fraud will become ever more sophisticated too as people take to using mobile banking services.
He says there will be a need to evolve to be more effective and relevant as these threats evolve with banks using all sorts of tools and applications to detect or alert themselves on potential threats.
[Source:-The Star Online]
