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Research by management advisory firm Euristix suggests that fast growing credit loss figures in the
recently reported accounts of major banks reveal a hidden burden.
Euristix estimates that over £1.3 billion of the total bad debt charge for the UK retail lending sector is, in reality, fraud.
The company has warned that losses due to fraudulent activities are dramatically impacting on the increase in provisions being made for bad and doubtful debt.
Martin Rowe, partner at Euristix commented: “Whilst some progress has been made in the fight against third party fraud, specifically with the introduction of chip and PIN, last year saw an increased rise in incidences of internal staff fraud, account takeovers and first party fraud.
"Many banks are struggling to separate credit and first party fraud losses, particularly those losses from apparently good ‘sleeper accounts’ that quickly ‘bust-out’ leaving very large losses, often over £50,000 from each case.”
Financial crime in the UK has reached a ten-year high, and Euristix estimates
that the figure for reported and unreported losses due to both fraud-based
credit and operational losses is in the region of £1.8 billion.
Banks admit that they face huge challenges in preventing their customers from
falling victim to the litany of financial scams and thefts emerging.
Rowe added: “Whilst many lenders have very large fraud departments they have in
the past tended to focus on dealing with the impact of fraud rather than its
prevention.
"Today, lenders are trying to introduce bespoke fraud strategies to
compliment traditional methods of detecting credit risk.
"The first step is to separate and profile the fraud losses to identify the
weaknesses being exploited by the fraudsters."
Source:
Credit Control Journal
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