Ernst & Young’s FIDS identifies top fraud and corruption trends for 2016

Cybersecurity fears, anti-bribery/anti-corruption enforcement and information governance resulting from data privacy and information sharing rules have been identified in Ernst & Young's (EY) Fraud Investigation & Dispute Services' (FIDS) Top Fraud and Corruption Trends for 2016.

Ernst & Young's FIDS identifies top fraud and corruption trends for 2016

Cybersecurity fears, anti-bribery/anti-corruption enforcement and information governance resulting from data privacy and information sharing rules have been identified in Ernst & Young's (EY) Fraud Investigation & Dispute Services' (FIDS) Top Fraud and Corruption Trends for 2016.

EY Americas FIDS Leader Brian Loughman said, “The geopolitical risk facing companies is manifesting itself with increased exposure to bribery, fraud, cyber breaches, and terrorist financing.

“Companies are being confronted with risks on all fronts at the same time that their ability to invest in the compliance function is under pressure. Companies will need to stay vigilant, work harder at providing the right training to their employees, and focus more on monitoring risks proactively,” he said.

EY FIDS said cyber breaches will continue and recent destructive attack techniques will be adopted by hacktivists to drive their agenda.

“Cyber-savvy companies and their boards are demanding more information about the specific threats they face, evaluating their resources, bolstering protection for critical assets, and preparing for incursions by advanced threat actors.”

EY FIDS said that new guidance for prosecutors from the United States Department of Justice (DoJ) in the form of the Yates Memorandum, as well as the ongoing protection provided to whistleblowers, suggest that law enforcement and regulators will play a bigger role as an integrity gatekeeper in the year ahead.

It predicts there will be more focus on individuals as the US Securities and Exchange Commission (SEC) and DoJ continue to invest in specialised resources to combat fraud, bribery, and corruption.

“While statutory safeguards exist to protect and motivate whistleblowers, the DoJ Yates Memorandum advances expectations for companies to fully identify all individuals who took part in corporate wrong doing if they are to secure credit for cooperation with the authorities.”

EY FIDS adds that as governments continue to enforce trade sanctions against individuals, companies and other governments, firms will be left navigating a difficult regulatory compliance environment.

“They need to be vigilant about understanding risks posed by third parties and individuals that are often masked by corporate structures often involving illicit drug trade or terrorist financing. Companies will need to build more robust local compliance teams and increase oversight and training,” it advises.

Addressing data privacy and information sharing, EY FIDS notes that the Cybersecurity Information Sharing Act had recently been passed by the US Senate and is close to being signed into law.

“If passed, corporations will be sharing information to help reduce cyber breaches and attacks, but will need to protect the data privacy of individuals using their systems.

“The ongoing focus on how personal information is handled internationally and how commercial information is shared between companies and the government during a cyber-breach investigation will drive companies to revisit their information governance strategies.”

It is interesting that while information sharing has been recognised in various international and national recommendations as a tool to combat financial crime; this has yet to become a reality.

ICC Commercial Crime Services (ICC CCS) suggests the main reason may be the multitude of jurisdictions and legislations which need to first be nationally adopted to become internationally compatible.

In this respect CCS’ Financial Investigation Bureau provides a unique link to organisations and businesses who would ordinarily not be able to share and exchange information. 

The report specifies areas that the financial services sector should take note of;

• Compliance expectations will be expanded for broker-dealers and investment advisors.

EY FIDS says continued areas of focus will include protection of confidential customer information, potential Market Access Rule violations, and compliance with record keeping requirements. New and evolving areas of focus are likely to include broker-dealers’ anti-money laundering compliance programs, and how domestic broker-dealers address risk exposure to foreign wrong doers. 

• There will be more oversight into retail asset management. 

Regulators are bringing scrutiny to asset managers’ supervisory systems, fee disclosures and marketing incentives relating to the sale of municipal bonds, mutual funds and closed-end-funds. Noted failures to adequately monitor customer account concentrations and leverage suitable customer risk tolerances resulted in censures and fines that will likely continue.

• Increased controls and protection will be required for customer assets.

The UK’s Financial Conduct Authority has already fined financial institutions for failing to comply with rules that protect customer money and assets in the event of insolvency. This action has triggered inquiries by the SEC and similar enforcement for failures to comply with the Customer Protection Rule, which requires the safeguarding of customer money and full-paid-for and excess-margin securities.