25 November 2024
One definition of fraud is ‘gaining an unlawful financial advantage’, and it seems to be a hobby for many in South Africa and around the world. Earlier in November 2024, the Association for Savings and Investment South Africa (ASISA) published some alarming stats. They divided the ASISA fraud statistics for 2023 into five categories and included detail around the number of detected incidents, the prevented loss and the actual loss, between 2022 and 2023.
Five categories of fraud to know
- Dishonest actions to gain commission or fees.
- Misrepresentation, non-disclosure, impersonation and identity theft at new business application stage.
- Fraudulently claiming benefits from risk policies such as life insurance and disability cover.
- Deceptively accessing investments and withdrawing money or disinvesting from them.
- Other methods include bribery and corruption, along with trying to gain investment policy benefits illegally.
The statistics
The published statistics look like this:
What do we see in the data?
In the graphs, notice the trend lines for fraudulent claims, accessing investments with deceptively to withdraw money and what is labelled in the ‘Other Attempts’ category. For these categories, the losses are alarmingly higher than the trend line for loss prevention. In the withdrawal and disinvestment category in particular, fewer cases were picked up in 2023 as opposed to 2022, which could mean the criminals are mastering their methods. This is also the category within which deceased estate fraud cases are reported.
The deceased estate fraud trend line should be very worrying for financial advisers who spend many years guiding their clients to provide for their loved ones at death, only to have dependents face a harsh reality after the death of the client. This could create uncertainty and distrust, not only around the adviser in question, but for the industry as a whole.
The fight is paying off, but let’s not relax
The financial services industry’s fight against fraud is evident in the decline in the number of cases and actual losses linked to new business applications via misrepresentation, non-disclosure and impersonation, for example. This links to what customer due diligence is all about, which encompasses the law requiring all accountable institutions, (the provider, insurer and the financial intermediary), to know their client well before establishing a business relationship or entering a single transaction.
’Know thy client’ – the first step to fraud prevention
In light of South Africa being on the FATF grey list (read the latest here) and increased regulations, more than ever, we have to ask the questions about who the client really is. During 2025, inevitably, we will be focusing on vesting recently implemented regulations, as well as new ones.
The Financial Intelligence Centre (FIC) recently issued Public Compliance Communication 59 (PCC59). The communication provides guidance that the industry needs to comply with. In short, the guidance addresses the fact that trends indicate that criminals abuse legal persons, trusts, and partnerships to cloud ownership or control. This is done to make it difficult to identify the ultimate beneficial owner of the entity. These types of entities are vulnerable to abuse, and it is required that accountable institutions ensure they identify the natural persons who have control.
Genuinely knowing your client, whether they are an individual or an entity, is of the utmost importance in our quest to prevent fraud and money laundering.
Knowledge, vigilance and collaboration are the tools in our combined fight against fraud.
All eyes are on us, the players in the financial services sector, to tackle fraud and protect our clients whose savings and investments we are the custodians.
Read more on the topic:
- https://www.glacierinsights.co.za/blog/investment-insights/vigilance-urged-for-deceased-estate-payments
- https://seb-news.sanlam.co.za/group-risk/legal-changes-customer-due-diligence-obligations-and-recent-changes-to-fica/
- https://www.glacierinsights.co.za/blog/investment-insights/safeguarding-your-practice-against-fraud
- https://www.gov.za/InternationalFraudAwarenessWeek2024
