Recent times have seen Kenyan banks being hit by several high profile fraud cases despite the Central Bank pledging tougher regulations. The cases have seen banks, insurance companies and other financial institutions lose millions of shillings to fraudsters.
Worldwide, fraud is a growing concern for banks, causing great losses both in terms of customer trust and money. According to a report by the Association of Certified Fraud Examiners banking fraud costs $67 billion globally and Kenya has not been left behind as one of the affected countries, notably in the cases of two major banks currently placed under receivership by the Central Bank of Kenya (CBK): Dubai Bank, which was closed in August, and Imperial Bank, that was closed in October 2015.
Dubai Bank was found to have violated rules concerning liquidity-capital ratio while Imperial Bank on the other hand was closed for unsafe banking practices which included irregular loans.
The Central Bank of Kenya has since announced stricter supervision and are looking for enhanced early warning systems to detect improprieties and protect bank clients.
For commercial banks operating in Kenya, protecting themselves and their customers from fraud must be a prime objective. For this reason, a leading Swiss fintech company, NetGuardians, has come up with a unique software solution that provides critical controls against fraud, assisting in compliance with national and international regulations. Know as FraudGuardian, the solution is based on NG|ScreenerZ, a smart behavioral analysis software based on policy rules and predictive analysis. Using Big Data to correlate human behavior and financial transactions across entire banking system, the solution can identify potential fraud before it happens. It tracks and audits all activities continuously, in real time, and instantly alerts risk managers to any deviations.
“The Imperial Bank case provides an excellent example of how FraudGuardian can protect banks,” John Kiptum, NetGuardians IT Risk & Internal Control Consultant, said “Imperial Bank was found to have fraudulent activities of substantial magnitude, relating largely to irregular granting of loans in violation of the statutory limits to a single borrower. As per Central Bank regulations, banks are supposed to send data regarding their asset portfolio, but Imperial Bank directors had colluded to misrepresent their financial health. FraudGuardian would have been able to expose the fraud and cover-up through its continuous monitoring. It proactively highlights and reports internal and external fraudulent activity and integrity breaches. FraudGuardian would also have been able to automatically provide necessary audit trail and forensics needed to unravel the mess and help prevent future incidents.”
Kenya is not alone in this situation. Nigeria, for instance, reported the highest value in fraud losses out of all African countries. In 2014 alone, fraud losses on payment channels were over 6.2bn Nigerian Naira, which was a sharp increase from 485m in 2013, according to a report of the Nigerian Inter-Banks Settlement System (NIBSS).
Central bank of Nigeria (CBN) has recently required banks to set up fraud desks to effectively respond to customer reports on fraud. CBN also took an initiative to help banks combat fraud by helping them look for a robust solution. CBN recommended NetGuardians’ anti-fraud solution to all Nigerian banks in support of the new fraud desk directive.
“We are working very closely with the Nigerian Inter-Banks Settlement System and the Commercial Banks at individual bank levels to ensure that the anti-fraud initiative in Nigeria is a success. This would also be a great initiative that Central Bank of Kenya could adopt. We are determined to partner with CBK to support them in the fight against banking fraud in Kenya”, John Busunkwi, NetGuardians Regional Director in East Africa added.
NetGuardians’ fraud management system covers all channels including e-banking, mobile banking, front-office and back-office as well as IT systems and financial transactions across the bank. As required, the task of reporting to the Nigeria Inter-Bank Settlement System (NIBSS) is done automatically.