The Rise Of AI-Driven Scams Explained

We are currently in an era where fraud is rapidly becoming as significant as financial crimes within the banking and regulatory landscape.

In this context, regulators in Asia swiftly implemented new regulations in 2024, as the news extensively reported, leaving banks struggling to keep pace.

Diverse Initiatives

In Singapore, the initiatives range from a relatively low-key mascot aimed at combating scams in the banking industry to a parliamentary bill that could empower police to directly limit banking transactions. Meanwhile, in Hong Kong, users of the Fast Payment System (FPS) receive alerts if they are at risk of falling prey to fraudsters, with plans for similar warnings to be issued by ATMs across the city starting in March.

As noted by the news at the time, Australia has adopted an even more straightforward stance on accountability within the banking sector. In December, it filed a lawsuit against HSBC due to failures related to scams.

Challenging Dilemma

Many financial institutions have found themselves unprepared and are struggling to grasp the situation—at least for now. The recent comments from the Australian regulator regarding HSBC conveyed a sense of frustration while highlighting a troubling scenario, something we had pointed out previously.

However, it’s essential to acknowledge that safeguarding clients against fraudsters is an extremely difficult challenge for banks. This is mainly because victims often unwittingly authorize fraudulent transactions, and once the funds are transferred, recovery is nearly impossible. In our modern era, falling prey to scams can occur quietly and appear legitimate until it’s far too late.

Increasing Complexity

Moreover, rising complexity exacerbates the situation. AU10TIX, a leader in global identity and verification management, reports that synthetic and AI-driven fraud constituted 75 per cent of the total losses they successfully prevented worldwide in 2024.

In terms of financial impact, they managed to avert approximately $7.5 billion in fraudulent activities last year.

Shift in Approach

In November, we read the interview of Ofer Friedman, AU10TIX’s Chief Business Development Officer, who discussed the escalating sophistication of these attacks.

He emphasized that current strategies necessitate a fundamental change. The advanced technologies associated with AI and Gen-AI are so intricate that they demand more than improved scrutiny; there must be a combination of individual case assessments and analyses of behavioural patterns.

Regional Vulnerabilities

He noted that the Asia Pacific region ranks prominently on the fraud scale compared to other areas, mainly due to the prevalence of fraud rings and dubious financial activities by individuals. For instance, in the realm of foreign exchange, this region boasts the highest number of active brokers and market transactions, which in turn attracts greater criminal attention due to the substantial trading volumes.

Additionally, a task force from Hong Kong is heading to Thailand this weekend in response to a surge in high-paying job scams targeting residents, particularly following the recent high-profile rescue of mainland actor Wang Xing, as reported by the “Bangkok Post” on Monday.

While this incident may not directly involve the financial sector, it underscores a significant concern. We are currently living in an era rife with scams, both online and offline.

Puzzled Reactions

What we are witnessing today bears some resemblance to the early days of international financial crime prevention when institutions outside the United States were gradually urged to take action starting in the 1990s.

At that time, attempting to get banks to scrutinise reasons behind repeated ATM withdrawals and circular payment patterns often elicited puzzled and bewildered reactions from bank executives—a painful lesson that HSBC learned in 2012.

Significant Consequences

The ongoing surge of fraudulent activity may affect the industry on a much grander scale than any financial crime could.

If the banking sector fails to manage this issue effectively, despite the significant challenges involved, it could inadvertently trigger the next major financial crisis.

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Virtual Bank Exodus

This situation could lead to a wave of bank runs, especially if customers begin to doubt that their banks can adequately safeguard their assets and recover funds lost to fraud.

As evidenced by the events surrounding Credit Suisse in 2023, digital bank runs can occur rapidly and unexpectedly.

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