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Wednesday, December 06, 2006

Financial Institutions Covering Up Fraud

As if the reputation of the British financial services industry was not already bad enough, banks and other financial institutions have found another way to drag their names even deeper through the mud.

It seems that they are deliberately failing to report incidents of online fraud to the police. Ironically they are covering up the incidents of fraud, in the mistaken belief that this will enhance their reputations.

Nothing could be further from the truth.

Metropolitan Police officer, Detective Superintendent Russell Day, told the all-party parliamentary group on identity fraud, that banks were deliberately covering up attacks on their IT systems.

Det Supt Day, who is in the Met's economic and e-crime unit, told MPs that one of the biggest threats was posed by "botnets". Botnets infect domestic pc's, and use them to launch attacks on companies' security systems and send out spam emails.

Quote:

"Financial institutions are not reporting it [these attacks] to law enforcement [agencies], and there could be two reasons for that. It could be one of consumer confidence, but I think that to be honest it is their lack of confidence in law enforcement to deal with it. And they are right. Because of the global nature of this, it doesn't fit in with our priorities."

Nigel Evans, the Tory MP chairing yesterday's hearing, asked Det Supt Day:

"Are you saying that there is fraud taking place in financial institutions and they don't refer it on to the Met because they are either afraid of their credibility being damaged or because they don't think you can cope with it?"

"Yes", was the answer.

Mr Evans said:

"while we all use this figure of £1.7BN, the real figure could be much, much higher. Institutions, for their own reasons, do not report the crime. It makes it much more difficult to give a proper estimate as to how huge the problem is

I assume the financial institutions lose the money and pass on the bill to customers
."

It can most certainly be guaranteed that the costs of these crimes are passed on to the hapless consumers, even though the failings are due to the inadequate security measures taken by the banks and the fact that they choose to cover up the problem.

Losses from online banking fraud amounted to £22.5M in the first six months of this year.

The financial services industry will avail themselves nothing, if they continue to cover up the problem. They should get out in front of this thing, come clean with the public about the risks and problems that they face and publicly state how they are going to address the problem.

Failure to do this will further damage their already shoddy reputation, and undermine the public's confidence in e-commerce, on line banking and the financial services industry as a whole.

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