As high-profile fraud and cyber-attacks dominate headlines, the financial services industry is adapting to this growing risk. Today, a proactive approach to both forms of risk, including investment in policies that protect against common attacks, has increasing merit.
Common threats: Fraud
Incidents of fraud are increasing, with the FCA's first financial crime report revealing that financial crime remains a serious concern for the industry. Evidence of this increase can be seen in the high number of reports escalated internally by staff and the investment in suitable protection against this type of risk.
The FCA report, which was published in November 2018, was based on a survey of over 2,000 UK financial services firms over 12 months throughout 2016 and 2017. The report reiterated what Lockton has known for some time: that the risk is increasing, it is becoming more varied and more can be done by financial services firms.
While the FCA is as active as ever in its efforts to investigate and punish incidents of financial crime, firms will benefit from taking a proactive approach to identifying their risk profiles and implementing measures to insulate their staff, operations and assets from that risk.
According to FCA findings, key areas where financial services firms are the victims of fraud include the following:
- Expenses
- Mortgages
- Loan repayments
- Computer-enabled fraud
- Card fraud and identity theft
Common threats: Cyber
Headlines that reference cybersecurity are becoming increasingly frequent. It's at the forefront of our political and business landscape and the financial services industry is no exception. The financial sector is particularly prone to cyber-attacks because it is vital in intermediating funds.
Cybercrime in the business world rose by a staggering 63% last year, with 56% of fraud-related incidents involving cybercrime and activities according to a recent report from the Office for National Statistics.
A separate staff modelling exercise from the International Monetary Fund put a cost on this rising figure, estimating that losses incurred by financial institutions as a result of cyber-attacks could exceed $300bn a year in future. Individual attacks commonly cause extensive damage, such as the loss of $500m from cryptocurrency exchange Coincheck.
The Lockton answer
With costs and frequency of attacks being so high, more institutions are turning to a comprehensive insurance product to alleviate this growing risk.
Lockton DNA wording protects against computer fraud, including virus and manipulation damages. It also contains wording on fraud to protect our clients' businesses against a plethora of acts which can affect their bottom line.
The Fraud clause in our wording covers:
Insured Person Dishonesty: This relates to any employee committing fraudulent acts. These include computer manipulation or computer virus damage. It also includes trading and trading without authority.
Third Party Fraud: When the insured acts upon written instructions which leads to a loss. This could include social engineering by cybercriminals.
Loss of Property: Damage to property which has not occurred by fire that is either the responsibility of the Fund/Fund Manager or owned by them.
Computer manipulation: Unauthorised or fraudulent tampering with electronic data or computer programs. Includes fund transfer instructions within an insured's computer system.
This extends to computer systems operated on behalf of an insured by third-party administrators, custodians or central depositories, including unauthorised access or manipulation of an account code or system password or the loss, damage or destruction of electronic data processing media.
Computer virus damage: This covers damage to data or computer programs which an insured relies upon. It also covers them if they have transferred funds or property by relying on the electronic programs affected by malware.
The cost of adding these clauses into operation is modest when compared to both the potential damages incurred and the remainder of an insured's policy. Typically, premiums rise by as little as 10% to 30%, making them manageable as part of a wider policy and an effective means of avoiding high-profile, punitive incidents which can threaten the stability of an entire organisation.
If you are interested in receiving a quote on upgrading your policy to cover Fraud/Crime then please speak to a member of your Lockton Team.