Counter internal threats with sophisticated fraud detection

Large financial institutions face battles on multiple fronts: with a difficult economic environment, low interest rates and stiff competition – companies can have their hands full. Add fraud risk to the mix and financial institutions have their work cut out. And of course, banks, insurance companies, and investment firms rely heavily on their staff to meet all these challenges.

Yet staff members pose one of the biggest fraud risks to financial institutions. Insiders can lead to fraud and mishaps that are enormously costly. However, financial institutions cannot apply the same security measures to internal staff as they do to external parties: staff must be able to carry on with their work without too many impediments.

The only alternative is to detect fraud before it is too late. Advanced fraud detection software provides a way forward, allowing staff to continue with daily duties while stopping rogue actors in their tracks.

Let’s take a look at the internal threats financial institutions face, and how these can be mitigated.

How employees endanger your institution

Simply put, your employees have the keys to the safe. Employees have deep access to your company’s systems which provides a wide range of opportunities to commit fraud. Your staff knows your systems and your vulnerabilities in a way that outsiders simply don’t. Most employees will behave responsibly, but it only takes one or two fraudsters to lead to large losses.

A 2017 Netwrix survey showed that in the past year 58% of respondents had security incidents where an insider was involved. So, though most employees can be trusted, there is a not insignificant chance that at least one employee will turn their hand at committing fraud.

Staff members may turn on their employers for a variety of reasons. First, over time individual members of staff can become disgruntled and grow a sense of entitlement, or simply feel that they are owed something by their employer. In other cases, a staff member may simply sense that the chances of getting away with fraud are fairly high and well worth the risk.

The costs of a rogue employee

Your company stands to suffer large losses from rogue employees – internal threats are not limited to amateur, cash-hungry employees: a rogue member of staff may come up with more sophisticated plans, including the theft of valuable customer data.

Also, note that the loss does not necessarily start and end with the incident itself. Sometimes the action of a fraudulent employee can be contained, but the repercussions of an internal rogue actor can be widespread. For example, the loss of intellectual property can undermine your company’s competitiveness for years. Consider the reputational damage too, media coverage of a data breach at a financial institution can quickly snowball and lead to an extremely negative view of your company.

Combating internal threats

We’ve outlined how internal threats are real, and how costly the rogue actions of an individual staff member can be. But what can leading financial institutions do about these risks? Is there a way to effectively combat internal threats without disrupting the day to day activities of staff members? Thankfully financial institutions have options. A mix of vigilance, good IT security practices, and automated fraud monitoring can offer a high level of protection against insider threats.

The first, obvious point of call is the use of security practices and policies which limits the opportunities for data loss and theft. For example, any departing employee should immediately have all access rights suspended. Security staff should also monitor unusual behavior, including logging the transfer of large data sets where it does not fit the employee’s role.

Yet the opportunity for fraud is wide and deep and manual monitoring and intervention will not capture all instances of employees that act against the interests of financial institutions. Automated monitoring, however, has a far wider reach.

Advanced protection against insider threats

Fraud detection that isn’t reliant on the human factor can be far more resilient against internal threats. On the one hand, automated fraud detection is not subject to human sentiments and the associated blind spots. Automated fraud protection is also more consistent, and more thorough.

Leading automated fraud solutions will evaluate all the transactions across your institution against a rule set, applying machine learning to adapt to new, unknown threats. Automated fraud detection can quickly identify high-risk behavior which can, in turn, be flagged for manual review. It is impossible to obtain the same degree of employee oversight using human intervention alone.

Yes, reliable employees that can be trusted combined with solid defenses against external penetration will deliver a lot of protection against the threats financial institutions face. But the internal threat cannot be ignored and behind-the-scenes, automated fraud prevention is the only effective way to control for unpredictable risks posed by external actors.