Ro Paddock, the head of anti-financial crime at Fourthline, explains why social engineering is at the root of most financial fraud involving consumers.

The term “social engineering” may sound like something out of a behavioral psychology textbook, but it is a real and present danger to citizens and financial institutions all over the world.

Indeed, social engineering is a primary cause of financial crime today, in which criminals deceive their victims by using psychological manipulation to perpetrate financial fraud, such as revealing confidential information and eliciting payments.

It’s also on the rise. Fourthline recently analyzed data from millions of bank account openings across Europe over the last year and discovered a 37% spike in social engineering attempts by fraudsters aiming to deceive consumers. Furthermore, according to the report, social engineering accounted for 46.73 percent of all financial fraud attempts in Europe in Q2 2021.

Regions with a high rate of social engineering

Romania (3.3 percent of bank account openings) and Greece (3.3 percent of bank account openings) are the countries that have seen the most of this form of fraud (2.7 percent of bank account openings). In the last year, Europe as a whole has experienced an upsurge in social engineering initiatives, accounting for 1.4 percent of all bank account openings.

While the numbers haven’t yet reached double digits, the financial ramifications are enormous: global financial crime compliance expenses exceed $213 billion.

What is the role of social engineering in financial crime?

In general, social engineering is a technique used by criminals to acquire access to an already open bank account or to open a false bank account with the help of an innocent individual.

Criminal methods are rapidly evolving. People have been duped into creating bank accounts all around Europe, for example, by taking a selfie of them while they are sleeping. Selfies may also be taken under duress and used by thieves to try to open a bank account, which is much more concerning.

The common thread running across this activity is that it takes advantage of human vulnerabilities to gather information under false pretenses, which is then utilized to wreak havoc on people’s personal money and financial systems through security breaches.

A catalyst for financial crime

Social engineering, identity theft, and related financial crimes have all been increased by the pandemic.
To avoid detection, fraudsters are growing more sophisticated, employing new techniques such as deep fakes and synthetic online identities.

Assisted selfies have climbed by 19% in the last year, according to our research.
A criminal ‘assists’ in taking a selfie of the account application to utilize for fraudulent reasons.
Using silicone masks or CGI technology to impersonate the applicant or imitate their location is a common example.

Unfortunately, the elderly are common targets of financial fraud, with our data revealing that 19.9% of people aged 60 and up were ‘help’ in opening a bank account in the previous year using fraudulent methods such as those described above.

The difficulties that financial institutions encounter

Financial institutions find themselves in a nearly hopeless scenario. Regulators across Europe have entrusted them with not just enhancing financial crime checks on new clients, but also evaluating and remediating current clients’ Know Your Client (KYC) files on a big scale. This needs a meticulous, high-quality approach that adheres to rigorous deadlines.

As fraudsters become more frequent and methods become more sophisticated, taking a proactive, comprehensive approach to identity verification is becoming increasingly critical. Financial institutions require real-time solutions, including intelligence and analysis of fraud patterns that may assist deploy red flags in time to halt fraud in its tracks, as criminals change their tactics on a regular basis.

In the end, mere document verification isn’t enough to counteract social engineering fraud; we need to take a more comprehensive approach to data verification. Institutions will only be able to render malicious actors toothless in the battle against financial fraud if this happens.