Global economic crime survey

The Financial Services (FS) sector results from PwC’s seventh Global Economic Crime Survey are intriguing because they often depart from the trends observed in other industries’ results. For example, 45% of Financial Services organisations have suffered economic crime during the survey period, compared to only 34% across all other industries. The key message from our survey results is this: while the FS sector may be ahead of many industries in terms of prevention and detection of economic crime, more can and should be done by FS organisations. Explore the findings in detail below.

Overall key findings:

  • An attractive target… 45% have suffered economic crime during the survey period, compared to only 34% across all other industries.
  • More than one way to lose… The sector remains a key target for criminals, and asset misappropriation is still the primary type of reported economic crime.
  • Cybercrime, bribery and corruption appear to be increasingly common in the sector.
  • Tone from the top… 1 in 5 internally perpetrated frauds still involve senior management, though the majority of such fraud tends to be committed by junior staff or middle management.
  • Delusions of security… Cybercrime risk appears to be increasing – however, risk awareness can differ greatly depending on an individual’s role and function.
  • Where the money’s at… Money laundering remains a hot topic in the FS sector, where it is almost five times more likely to occur than in other industries.
  • Named and shamed… FS organisations fear the fallout of being caught up in money laundering – almost 30% believed that the most severe impact is reputational.
  • Telling… Whistleblowing mechanisms appear to be more prevalent than before, however doubts remain over their effectiveness.
  • Underestimating the risk... 1 in 4 FS respondents failed to conduct annual fraud risk assessments.
  • Over half of those who have not conducted any at all during the survey period are unaware of what these assessments involve or fail to see value in them.
 
 
 

Around half of the FS respondents who have experienced economic crime during the survey period report an increase in the number of occurrences and the financial value of economic crime during the period (more so than other industries’ respondents). There are regional variations – in Asia Pacific at least half of FS respondents reported an increase; in contrast, nearly 40% of FS respondents from South & Central America reported a decrease.

Key findings

  • Asset misappropriation remains the primary type of economic crime reported by FS organisations (67%) – not unexpected for a sector which processes money, and given the low cost of conversion for fraudsters.
  • Cybercrime follows asset misappropriation as the next most common type of economic crime at FS organisations. Bribery and corruption are also becoming more common.
  • Only 1 in 5 FS organisations experienced accounting fraud (compared to 1 in 4 previously) – we believe this is explained by improvements in corporate controls.
  • The key threats to the FS sector within the broad spectrum of economic crime range from more ‘conventional’ fraud (e.g. asset misappropriation) to money laundering by third parties.
  • External fraudsters are still the main perpetrators of economic crime for the majority of FS organisations (57% in 2014 and 60% in 2011).
 
 

The FS sector was one of the first to be targeted by cybercrime – little wonder, as there have always been significant potential financial gains to be had from subverting computerised processes and corporate controls in banks.

Key findings

  • Cybercrime is still the second most common type of economic crime reported by FS respondents (after asset misappropriation) – 38% in 2011 vs 39% in 2014.
  • Only 41% of FS respondents believe it is likely that they will experience cybercrime in the next 24 months (including some 45% in Africa and36 % in Asia Pacific). This compares to 26% in other industries.
  • FS respondents perceive a greater increase in the risk of cybercrime compared to counterparts in other industries (57% in FS vs 45% in other industries).
  • Cybercrime is growing and the methods are constantly evolving – we see no abatement in attacks on banks’ infrastructure.
 
 

When it comes to fraud, there is more than one way to suffer loss. The FS sector is particularly exposed to certain types of fraud (such as money laundering) and faces unique regulatory challenges as a result.

Key findings

  • Money laundering ranks just behind asset misappropriation and cybercrime as the biggest form of economic crime – and it’s unique in the sense that the effects are felt, not through direct financial loss, but through loss of reputation.
  • 50% of FS respondents in Western Europe and Africa cited money laundering as their highest risk in doing business globally, compared to bribery & corruption and anti-competition law.
  • Money laundering is almost five times as likely to occur in the FS sector compared to other industries.
  • Whistleblowing mechanisms remain underused in the FS sector, in part, we believe, because of the greater dependencies placed on process-type detection methods in the industry – which may encourage complacency.
  • Of those who do have a whistleblowing mechanism in place, over 1 in 2 (53%) reported effective or very effective whistleblowing mechanisms, compared to 27% in 2011.
  • Doubts over the effectiveness of whistleblowing policies still remain – 16% still don’t know whether their whistleblowing mechanism is effective or not. And a further 7% believe it is ineffective, including 10% from Western Europe and 6% from Asia Pacific and Africa.
  • It is far better for FS organisations to take a circumspect and informed approach to operating in emerging markets than to fall foul of regulators after the event – especially as recent regulatory releases and press reports seem to suggest that the FS sector is beginning to experience increased regulatory scrutiny with regards to the U.S. Foreign Corrupt Practices Act (FCPA) and other similar areas of compliance.
  • The percentage of FS respondents whose organisations did not perform annual Fraud Risk Assessments (FRA) has increased from 18% to 25%.
  • 12% of FS respondents do not know whether any FRAs were performed in their organisation during the survey period. When asked why, 32% noted they did not know what an FRA involves (compared to 30% in other industries in 2014, 36% of FS respondents in 2011).
  • 27% perceived a lack of value in FRAs.
  • It appears that over 50% of respondents that did not carry out any FRAs during the survey period fail to see the correlation between fraud, working conditions, organisational culture and the effectiveness of corporate controls.