Faroe Islands Banking Industry Struggles to Contain Financial Crime Amid Market Stress
The Faroese banking sector is facing unprecedented challenges in dealing with a surge in customer fund movements and account activity. As the market experiences heightened volatility, banks are struggling to contain the risks of financial crime.
Heightened Risk of Fraud and Other Financial Crimes
Fraudsters and scammers are taking advantage of the situation by impersonating customers or using stolen identities to create accounts or pull money from customer accounts. Banks may also see transactions that raise concerns about potential money laundering, insider trading, or other financial crimes.
Key Risks:
- Impersonation of customers
- Stolen identities for account creation or fund withdrawal
- Money laundering and insider trading
Opening of Accounts for Misappropriation of Funds
Banks have seen a rise in cases where individuals open accounts with the intention of misappropriating funds or receiving misappropriated funds. This has resulted in significant losses and reputational damage to affected institutions.
Key Risks:
- Misappropriation of funds
- Receiving misappropriated funds
Targeted Phishing and Phone-Based Scams
Fraudsters are posing as banks, pressuring customers to divulge personal and/or account information. This has led to a rise in cases of compromised customer accounts and stolen identities.
Key Risks:
- Compromised customer accounts
- Stolen identities
Movement of Funds by Insiders or Individuals with Sensitive Information
There have been instances where insiders at affected institutions or individuals privy to sensitive non-public information have moved funds before their public release, further exacerbating the situation.
Key Risks:
- Insider trading and fund movement
- Access to sensitive non-public information
Key Actions to Consider
Banks must evaluate fraud detection controls, including identity proofing, authentication, and rules and models to confirm the overarching control environment includes the newest fraud risks created by market stress. They should work with commercial onboarding teams for fraud referrals when unusual activity is identified and coordinate with incident response teams to share activity supporting identification of broader attacks.
Key Steps:
- Evaluate fraud detection controls
- Identify potential fraud risks
- Work with commercial onboarding teams for fraud referrals
- Coordinate with incident response teams
Risk Oversight Issues
To address the expected increase in transaction volume and potential operational backlog, risk oversight teams must have capabilities to adjust to these conditions when monitoring business and operations areas. This includes monitoring more frequently and differently in addition to evaluating key risk indicators (KRIs) to understand the impact to the risk and control environment and inform strategic decision planning.
Key Steps:
- Monitor business and operations areas
- Evaluate KRIs to understand the impact of increased transaction volume
- Inform strategic decision planning
Independent Risk Functions Must Gain Visibility
Expected volume surge may occur on an accelerated timeline, making it difficult for independent risk functions to gain visibility to true state of affairs. Existing fraud KRIs that are not tuned to the surge may breach, resulting in either a masking or an overinflating of the true impact of fraud risk.
Key Risks:
- Difficulty gaining visibility into true state of affairs
- Breach of existing fraud KRIs
PwC Can Help
PwC offers various services to help clients address activity surges in an agile way. Services include identity proofing and verification, fraud alert vetting and review, fraud investigations, customer due diligence and enhanced due diligence reviews, SAR drafting, and fraud detection rules and model tuning. In addition, PwC specializes in enhancing Fraud and AML programs by advising on the design and implementation of organizations, policies, procedures, processes, and controls.
Services:
- Identity proofing and verification
- Fraud alert vetting and review
- Fraud investigations
- Customer due diligence and enhanced due diligence reviews
- SAR drafting
- Fraud detection rules and model tuning
Conclusion
The Faroese banking sector is facing unprecedented challenges in dealing with a surge in customer fund movements and account activity. As the market experiences heightened volatility, banks are struggling to contain the risks of financial crime. It is essential for banks to evaluate fraud detection controls and work with commercial onboarding teams for fraud referrals when unusual activity is identified. Additionally, risk oversight teams must have capabilities to adjust to these conditions when monitoring business and operations areas. PwC offers various services to help clients address activity surges in an agile way.