Identity Fraud Prevention: 5 Simple Steps To Protect Your Bank From Fraud, Loss And Non-Compliance

In the UK, the overall value of online banking fraud has drastically increased in the past ten years. New legislation and regulatory frameworks are aiming to curb these increases. However, the fact remains that there is a drastic need for greater security for customers who use online banking services. Modern banks need to invest in robust Identity fraud solutions to ensure that fraudsters don’t slip through the cracks. In this article, we’ll share five simple steps to protect your bank from fraud, loss, and non-compliance.

The challenge for compliance officers and large banks in terms of meeting KYC obligations is to balance the need for fast customer onboarding with managing a robust anti-money laundering compliance program. 

Here are the five simple strategies your bank can use to avoid major fraud, loss, & non-compliance: 

  1. Build-in multi-factor authentication
  2. Continuous transaction monitoring and periodic customer identification
  3. Reconciling bank accounts on a daily basis
  4. Employ dual control procedures
  5. Create fraud awareness campaigns

5 Simple Steps To Protect Your Bank From Fraud

Identity Fraud Solutions: 5 Simple Steps To Protect Your Bank From fraud

Successful identity fraud solutions start with implementing proper procedures including identity document validation, internal controls, and customer due diligence. Identity document validation (and detecting fraudulent identity documents) is a major part of a robust Know Your Customer (KYC) process. Authenticating and verifying government-issued identity documents is becoming more complex and costly due to the innovative ways in which money launderers, fraudsters, and identity thieves use even the most rudimentary tools to spoof identities and create false identity documents. 

Many Identity fraud solutions fail to incorporate even the most basic know your customer or fraud prevention steps, so be sure to partner with a team that has experience in the areas mentioned below. 

  1. Build In Multi-factor Authentication As One of Your Identity Fraud Solutions

Fraudsters may take advantage of your ill-preparedness and find a way into your bank in order to wreak havoc. Funds may end up missing if robust security controls are not implemented. What’s worse, identities may be spoofed or may be synthetic in nature and your bank may never know the difference. 

Incorporating the use of fast APIs such as IDMERIT’s REST API helps to ensure the speed of multi-factor authentication and identity verification. This kind of authentication allows users to proceed with most transactions after passing two or more verification tests on the bank’s website. This process is similar to KYC identity document verification during onboarding during which customers are required to provide two different valid identity documents.

These safeguards help to identify the person attempting to be onboarded or gain access to the bank and whether this individual actually has valid credentials. If any fraud or improper behavior occurs, there will be an audit trail, including the credentials used during two-step authentication and investigators will be able to trace where the transaction originated from. Identity verification APIs are both useful during transaction authentication and during onboarding and are a staple tool for fraud prevention solutions

Two-factor authentication goes beyond just asking a customer their username and password. This extra layer of protection guarantees an additional measure of security and peace of mind for compliance and bank officers alike. Security measures such as multi-factor authentication use One-Time-Passwords (OTP), encrypted security badges, or biometric machines which will prevent fraud. These security measures will also secure key systems and areas before anything damaging happens.

Identity fraud solutions that are focused on helping you integrate robust security measures will help your bank grow over time.

Contact one of our identity specialists to Schedule a Demo of IDMscan today.

  1. Continuous Transaction Monitoring And Periodic Customer Identification

At times, banks may notice suspicious transactions that might have been carried out by a customer who isn’t known to the bank or wasn’t properly vetted. This suspicious activity will usually lead to more in-depth research including transaction analysis in hopes of identifying whether the transaction was fraudulent or not. 

Identity verification solutions implemented at the customer onboarding stage may limit this from occurring and prevent bad actors from gaining access to your bank’s precious resources. Additional steps a bank can take to avoid such situations include setting transaction limits and implementing ongoing transaction monitoring or periodic customer re-identification. Identity fraud solutions focus on helping you identify whether you are complying with due diligence requirements and protecting your bank or falling short entirely. Banks and financial organizations who do not comply with these requirements risk heavy fines and damage to their reputations

Transaction monitoring doesn’t just encompass monetary transactions but can also branch out into more obscure (not normally analyzed) data changes such as: changing a profile on an account, the addition of beneficiaries and registering of devices on certain unscrupulous networks or locations can be suspicious. 

A bank may also choose to obtain identity verification services that include continuous translation monitoring/live transaction monitoring if transaction activity warrants this. It is necessary, however, to stop this type of customer at the onboarding stage with robust identity verification services and risk profiling. 

  1. Reconciling Bank Accounts on a Daily Basis

Account transactions are usually simple and easily reconcilable (especially by today’s banking systems). If you onboard the right customers and have the proper KYC procedures in place, you may never encounter fraudulent transactions or face the mounting costs involved with fraud investigations.

To ensure smoother onboarding, identity verification APIs make sure this task is done faster as information transmission is secure and usually travels through an encrypted tunnel.  Identity fraud solutions help to integrate the kind of monitoring systems you may be accustomed to at larger banks or multinational corporations. These systems ensure bad actors are held at bay. Identity fraud solutions make use of identity verification APIs that have built-in encryption protocols that protect personally identifiable information (PII). 

Reconciling of accounts on a daily basis helps to flag risky transactions and informs bank employees or management that ongoing monitoring may be needed. Here, the bank compares an internal financial record with the records that show up each account. Transaction reconciliation can be completed by the bank’s system using reconciliation statements. It’s advisable for your bank to reconcile on a daily basis.

REST API: Transaction Analysis & Identity Verification Services At Lightning Speed

Identity fraud solutions are often not equipped to identify new customers at scale. IDMERIT’s identity verification services use the REST API to help banks scale faster and onboard quicker. 

Utilizing an API (REST) can speed your bank’s onboarding process and help you meet compliance obligations at a lower cost. Using our API, your bank can access over 400 official data sources across 175+ countries to provide Know Your Customer (KYC) services

Contact Us to Schedule a Demo of our Identity verification API and learn how you can comply faster.

  1. Implement Dual Control Procedures

The process of implementing dual control procedures helps a bank to limit fraud by ensuring that transactions are carried out in two steps. These two steps include the initiation of the transaction and its approval process. The transactions themselves are segmented (carried out) by at least two different employees, systems, or at different time frames. This segmentation helps to act as another form of internal control.

Initiation, or the initial transaction, is carried out by the customer and the approval is done by another person or team. This helps to reduce the chances of fraud by fraudsters or even bank employees. It protects accounts by avoiding compromised credentials, payment scams, internal fraud by employees, and errors that might arise during the processing of payments. Possible errors could include mistyping account numbers or typos in payment amounts. Approval by a secondary team or bank employee occurs to ensure that the transaction underway is genuine and is even authorized by the customer or bank employees to carry out.

The dual control system sets several restrictions and controls regarding the wire and ACH payments. Strict internal controls ensure that no transaction is verified without being approved by a second employee who acts as an additional set of eyes and confirmation on the legitimacy of the transaction.

Identity fraud solutions work to build not only internal controls but can also help you craft fraud awareness campaigns for your bank. 

Identity fraud solutions such as IDMERIT can help your bank prevent fraud and onboard faster. Contact one of our Identity Executives today for more information. 

  1. Create Fraud Awareness Campaigns

Banks can help their customers by creating fraud awareness campaigns in order to educate their employees and create a culture of compliance by customers and branch employees. This is also something that identity verification solutions can incorporate into the onboarding process. This could be accomplished through educational videos, drip campaigns, or pamphlets. Identity fraud solutions may help you by providing specific fraud or risk typologies that you can share on your blog or within drip campaigns.

These campaigns begin by making customers and bank employees aware of the different actions that fraudsters engage in (especially during social engineering attacks) These attacks occur when fraudsters use psychological tricks and unscrupulous tactics to win the minds of naive and pliable persons who end up providing account credentials used in synthetic or identity spoofing attacks. Common social engineering scenarios may include a customer being told by someone believed to be a staff of a certain bank to give passwords of his account.

Public information campaigns and fraud awareness campaigns can be crafted by identity fraud services to stop this before it happens. Also, in case a social engineering attack does occur, the customer should know how they can reach, and report the engineering attempt or fraudulent action, to the bank so that an action can be taken immediately. 

A bank, therefore, should create fraud prevention awareness campaigns to protect its customers and provide them with actions that remedy the situation. Possible preventative measures bank employees may provide customers include instructing customers to:

  • Think twice when answering calls or texts from unknown numbers
  • Avoid suspect payment methods
  • Remain alert & willing to refuse a purported bank employee that wants to receive private account information without first providing some sort of identification. 

If all customers begin to adopt this set of fraud prevention techniques, fraud may end up falling to a minimal level.

Compliance steps to deal with AML/CTF laws in Europe.

Complying with the Anti-Money Laundering and Counter-Terrorism Financing laws is mandatory in Europe with the adoption of AMLD5 and the GDPR. Banks and money service providers that comply with AML/CFT regulations speed up onboarding and prevent money laundering and any terrorist activity that could occur. Strict onboarding and identity verification services help to weed out bad actors and fraudsters. Identity fraud services such as IDMERIT recommend these simple steps, which include training of employees and setting standards for your team. 

Employee Training Programs on AML/CFT Procedures

Training employees to understand the red flags associated with suspicious transactions which may have originated from money laundering or terrorist activity is one of the most important tasks when building a customer due to diligence program. Proper training for bank employees on anti-fraud procedures should include information on how to report any suspicious transactions or when to report such acts to management (as a first step).

After conducting research, and if sufficient evidence is found, the AML officers should be trained on how to report the case to the appropriate bank manager. This may also involve contacting the local authorities’ Financial Intelligence Unit (FIU). Any changes in anti-money laundering legislation should also be promptly communicated to bank employees through a thorough employee education campaign. 

Dealing directly with customers requires intensive fraud prevention (or ‘red flag’) training to avoid any ML/TF risk. Bank employees should be aware of the Financial Conduct Authority (FCA) regulations in order to be able to properly assess any risk or even just to be educated on money laundering typologies or risky transactions which may be predicate offenses to financial crimes.

Recruit A Compliance Officer

Identity fraud services may also recommend you hire a compliance officer for your bank or financial institution. Compliance officers are experts in dealing with regulatory and legal compliance. The officer ensures risk for the bank remains low. He/she also establishes standards for specific transactions both at a consumer and organizational level. Your Compliance Officer may be a company lawyer or an independent officer of the branch.

Despite employees being aware of AML policies and risks, the officer reviews potential compliance issues with large transactions or business relationships that may not only open the bank up to lawsuits. Not only is reputational risk a concern, but a bank without a compliance officer is just bad business in the first place. In case internal controls fail, such as a conflict of interest or issue relating to compliance occurs, the officer detects it and proposes ways to eliminate the risk. 

Ensure Your Audits Are Independent

Independent audits help to match a bank’s compliance program with what is required by financial regulations. This may include AML/CFT laws or internal financial controls. In case any gaps in compliance are found during the audit, the bank’s management should work quickly to solve them. This usually happens with the help of compliance officers and identity verification solutions such as IDMERIT.

These audits help banks to build systems that customers and bank employees can rely on. These systems help a bank officer know his/her clients, conduct employee training, monitor practices and make reports to appropriate regulatory bodies. The independent audit team ensures that all AML/CFT policies are strictly followed. In case of any existing deficiencies that are detected, the audit team ensures that it follows up with bank management, who ensure actions are undertaken to bring the deficiencies up to standard.

Fraud Prevention and Suspicious Activity Reports (SAR)

In cases of suspicious activities, it is now the responsibility of bank staff to report to the Financial Intelligence Unit (FIU) and to file Suspicious Activity Reports (SARs). This unit may then embark on transaction analysis or conduct a more in-depth investigation if needed. After these investigations are completed, the investigators present the results and provide the possible remedies to ensure risk is controlled.

Implement Customer Due Diligence During Onboarding with Know Your Customer (KYC) Processes

A bank should adhere to a strict Customer Due Diligence (CDD) by employing a Know Your Customer (KYC) ideology. Proper customer due diligence is important because:

  • It helps protect a bank against potential fraud and risk
  • It helps the bank to make appropriate data-driven decisions
  • It enables the bank to comply with current AML/CTF laws and regulations 
  • Identification of suspicious activities is the rule, not the exception

Final Thoughts

Banks should have sufficient and reliable experts at hand to deal with risky scenarios (including fraud or identity spoofing). Compliance with all regulations governing AML/CTF will provide your bank the fraud prevention protection it needs to remain solvent. Identity verification services will help guide you through this process and ensure your bank is following all guidelines imposed by the appropriate regulatory authorities. You should be aware that fraudsters are waiting in the wings and searching for any available loophole to take advantage of. Don’t forget to ask about our Identity verification API!

Contact one of our identity specialists to Schedule a Demo of IDMscan today.

IDMscan: Global Identity Document Verification 

IDMscan is a key solution that is a part of the IDMERIT identity verification service ecosystem. It is an application that scans customer identity documents, such as passports, to validate and authenticate their identity.

  • We can validate Passports, Drivers Licenses and National IDs from 175+ countries.
  • Biometric facial recognition & face liveliness technologies are used to produce a live match.
  • Multi-Language support 
  • Easily integrate into your system with a simple identity verification API.
  • Validate someone in less than 30 seconds

Stay tuned to our Identity Insights blog for more content relating to fraud prevention, remote KYC, identity verification APIs, and anti-money laundering regulations.  

Follow our LinkedIn and Facebook pages for anti-money laundering news and significant regulatory changes.


Headquartered in San Diego, California, IDMERIT provides an ecosystem of identity verification solutions designed to help its customers prevent fraud, meet regulatory compliance and deliver frictionless user experiences. The company is committed to the ongoing development and delivery of offerings that are more cost-effective and comprehensive than other solution providers. IDMERIT was funded by experts who have been sourcing data on personal and business identities across the globe for over a decade. This access to official and trusted data throughout the world has become increasingly important as companies find themselves completing transactions across borders as a standard course of business.

Jay Raol
Jay Raol

Jay Raol has been a Media Manager, Entrepreneur, Political Analyst and an Environmentalist. He aspires to climb the mighty Himalayas, and learn a new language every year. He lives in the beautiful city of Carlsbad in Southern California and owns a great collection of books. He is on schedule to publish his first book; 'Thou Art, Dope'. Co-founded two companies that provide futuristic solutions to the world while being quite enthusiastic about helping and investing in technology startups.

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