Why calibrating your anti-fraud system is essential

When it comes to defending against fraud to reduce losses even the most sophisticated fraud prevention and detection solutions require regular calibration to make sure they are configured to deal with the latest fraud threats.

The following case study discusses the importance of regular assessment of fraud defences and how one of Synectics Solutions’ SIRA clients have demonstrated how strategically optimising their fraud systems led to a reduction in false positives, a much more productive investigations team and a reduction in their losses.

The operational efficiencies of dealing with large volumes of fraud investigations to reduce losses can be a very complex issue.

Every financial services organisation has a range of legacy systems, operational processes and resource limitations to contend with. All of which have a significant impact on how efficiently organisations are able to deal with fraud investigations and make improvements to their fraud prevention success rates.

No matter how sophisticated the software or analysis tools are, to help reduce losses to fraud; if a company doesn’t ensure that they have given considerable thought to how these systems are regularly calibrated they will still find that their cases ‘worked’ rate falls far short of what would be considered optimal, when trying to reduce the amount of fraud that they are being exposed to.

Many organisations that are working on reducing losses to fraud would like to investigate 100% of the applications that are flagged or referred to them. However, in practice, particularly for some of the larger financial services organisations, this is just not feasible.

The sheer volume of referred fraud investigations received, and the investigation resource required to deal with them, means that a significant amount of fraud referrals cannot be investigated.

Another factor that is creating additional pressure on fraud teams is the ever increasing drive to reduce the time it takes to approve customer applications in order to remain competitive as more and more financial products are offered online.

The truth is that there isn’t just one set of parameters for what ‘good’ should look like when it comes to analysing the volume of fraud referrals that should be investigated. Each company will have its own defined strategy for the amount of risk that it’s prepared to accept.

Furthermore, depending on the products that a company is selling, and the market segments they are dealing with, the proportion of applications that represent a risk and require ‘working’ to deter the risk of fraud getting through will differ considerably.

However, no matter what profile of market sector a company is dealing with one factor remains consistently true. Companies need to regularly review the calibration of the decision systems that their fraud defences have been configured with if they are to avoid falling way behind their industry peers in reducing losses to fraud.

It’s seems like a fairly obvious fact that those looking to perpetrate fraud are constantly trying out new scams and methods to enact fraud. Yet it’s surprising that there are many companies who have invested heavily in deploying sophisticated fraud prevention or detection systems, who have spent very little time evaluating how these systems have been calibrated.

Additionally, organisations are not regularly reviewing their system configuration to ensure that the latest threats are being factored into to how they refer cases for investigation.

In fact, recent research done by Synectics Solutions has revealed that as many as 57%1 of financial services companies fail to regularly review their decision metrics to make sure that they have been calibrated to reflect current best practice.

The risks of working in this way not only increases the likelihood that an unnecessary amount of fraud will be going undetected, but also that companies risk falling foul of their responsibilities from a compliance perspective.

All registered financial services companies in the UK have to report on their fraud losses to the Financial Conduct Authority (FCA), and if the proportion of losses they are receiving becomes significantly out of step with others in their industry, they risk being investigated by the FCA to find out why.

A recent study by Crowe Clark Whitehall in Association with Portsmouth University found that in 2017 fraud cost the UK economy over £190 billion2 across a range of sectors and products including payment and credit cards, mortgages, unsecured loans and insurance.

It would certainly be beneficial for all companies providing these kinds of services to be mindful of their losses to fraud if they’re to be able to demonstrate to the FCA that they have robust, effective and up to date systems that will enable them to meet their compliance and regulatory obligations.

"...in 2017 fraud cost the UK economy over £190 billion across a range of sectors..."

As one of the UK’s most comprehensive fraud intelligence solution providers Synectics Solutions, through its SIRA platform, has seen many instances of how evaluating and recalibrating the decision rules and analytics that a client has can make a significant impact on reducing losses to fraud – and also on reducing investigation costs by streamlining the investigation workflow of busy fraud investigation teams.

Also, being able to benchmark oneself, when it comes to assessing losses to fraud, is tremendously useful in helping to understand whether an organisation is performing well when it comes to deterring fraud or financial crime, in comparison to industry peers.

Having this kind of analysis can be a very good way to determine if fraud defences are as good as can be expected or if there is work to be done to improve things.

Data collaboration though shared fraud intelligence resources (such as National SIRA) is certainly a good way to have access to comparable data with which to bench mark exposure to fraud.

CASE STUDY: MOTOR ASSET FINANCE

One such example of how it’s possible to make significant improvements in the ability to effectively manage investigation caseloads involved a long standing member of the National SIRA syndicate. They found that through the growth and success of their business they were having to deal with an increasing volume of investigation referrals, despite the limitations of their fraud investigation capacity.

Despite the client having made good progress in deterring fraud through the initial implementation of SIRA, the growth in their business required a reassessment of the workflow and decision processes to ensure that the most efficient method of identifying, prioritising and allocating fraud investigations was in place. This would help them ensure their investigations team were working optimally to maximise their ability to reduce losses to fraud.

Additionally the client needed to make sure that their fraud defences were not adversely impacting the company’s need to turn around applications for finance within the hour – or risk becoming uncompetitive in their marketplace.

SOLUTION

The Financial Crime Intelligence Team from Synectics Solutions were engaged with the client to help them review and optimise their SIRA fraud defences. The first part of this review included some consultancy and analysis of the sector that the client was working in to enable them to benchmark how they were working in comparison to other members of the National SIRA syndicate.

This also enabled Synectics to ensure that the decision analytics in the client’s systems were set up optimally so they were maximising their ability to prevent fraud – but was also configured in such a way that it reflected the unique risk appetite that the client’s business model suggested.

Specifically this included;

• Benchmark analysis of fraud, false positive and clear rates
• Helping to implement a more nuanced approach to cross sector fraud matching
• Restructuring workflow to create more efficient investigation processes
• Optimising the way in which cases are triggered or prioritised
• Reducing false positives and referrals that held little relevance for the clients business

THE RESULTS

• 30% reduction in referrals requiring investigation
• 117% increase in cases worked successfully
• 24% increase in fraud cases investigated
• 100% increase in volume of fraud identified

Tracy Herbert, lead Financial Crime Intelligence (FCI) consultant at Synectics Solutions commented;

"Clients sometimes require support when making sure their fraud defence solutions are optimised as a company's business model or objectives change and obviously the nature of it evolves. By providing this consultancy analysis we were able to restructure client workflow decision rules to make sure that SIRA was minimising false positives and prioritising investigations appropriately, improving the client's ability to significantly reduce losses."