Antifraud Congress 2020 and factoring (report)

On 21/10/20, the Anti-Fraud Congress organized by the ZPF was held. In the article a subjective account from the perspective of legal aspects for the financial industry, with emphasis on factoring. Full program available on the Congress website.

1. Presentation of the results of the EY Poland - ZPF study (fraud in the financial sector)

The first panel included a presentation of the results of the EY Poland - ZPF study on fraud in the financial sector. The time of the COVID-19 epidemic is a period of exploitation of remote work and the opening of multiple online channels for everyday transactions. This, in turn, promotes a change in the methods used by fraudsters, who quickly adapt to the changing reality. The survey was conducted in the form of an anonymous questionnaire, from June to August 2020. This year's survey of fraud in the financial sector included 4 groups of respondents: banks, lending institutions (the most numerous group), leasing companies and insurance companies. The presentation is available, so it will be pointless to duplicate the content of the survey results. Therefore, I will only mention what is noteworthy, possibly surprised me the most, or where I have a different point of view than the respondents:

• According to respondents, the intensification of abuse during the survey period was not pronounced. In my opinion, this is due to 4 reasons: (i) the postponement of the phenomenon of catching these frauds (where, using factoring as an example, the catching of a fraudu most often takes place at the time of the defaultu, after the due date of the invoice submitted for financing (which is about 30-90 days), (ii) the fact of deferral of the very defaultu with fraud (e.g., at the time of recourse to an insolvent entity), (iii) a decrease in the overall activity of financing companies, including fewer contracts concluded, applications received and positive financing / cap decisions, and thus a lower volume of financing resulting also in a decrease in fraud (overall fraud was less by the smaller scale of financing provided), (iv) "patching" holes with funds from the shield, dam where the default on the actual fracas could have occurred (i.e., I do fraud and, for example, take out an obligation hoping that maybe there will be nothing to repay it from, but it does not come to light because in the meantime the funds are coming in and I already have something to repay it from). In the latter case, in the event of payment of the obligation (loan, factoring recourse), the fraud will not even come to light, and the financier has not persistently drilled the circumstances of the event in the absence of a defaultu. The above remarks apply especially to such industry representatives as loan companies, factoring companies, banks, because in their case the effects of fraud very often come to light later. In the case of insurers this period may be shorter, similarly in the case of lessors.
• During the pandemic, information about new scams and scam methods appeared almost daily, and in the face of such dynamism and creativity of fraudsters, it is mainly the speed of response and reliable tools that matter.
• Among the most effective methods of countering fraud in financial institutions are verification of customer data during sales decisions and actions taken by an independent internal team dedicated to detecting and combating irregularities. I wrote about this here in the context of discussing Crif polls For Risk & Supervision Meeting 2020.
• Lending institutions focus on identifying fraud risks before entering into a customer relationship. Leasing companies, like banks, do not limit themselves to identifying risks at entry, but analyze the situation throughout the business relationship or the life of the product. In my opinion, this may be due to volume differences, loan companies operate at lower funding levels which also influences different risk tolerance and portfolio dispersion. Monitoring, by design, is used as a form of additional security and protection of the financing provided at a higher scale.
• The most frequently cited problem turned out to be (i) difficulties in court proceedings, including the suspension of the operation of courts and prosecutors' offices, which often had a direct impact on the prolonged course of proceedings., (ii) difficulties related to the circulation of documents, especially in the case of cooperation with law enforcement agencies, (iii) difficulties in debt collection, (iv) difficult personal contact with and identification of clients. These comments as a practitioner I fully share, during this period creative debt collection was gaining ground.
• The most scam-prone distribution channel for products and services is online. This trend has not changed, although there is a noticeable increase in the number of such indications. I stand by the view that this trend will continue due to the transfer of financing to the web and digitalization, which has undoubtedly accelerated this year, forced by the situation.

2. Practitioner session "Effective Fraud Detection in Action."

This session focused on discussing the threats posed by COVID-19 and the landscape of potential fraud, especially such as AI fraud, malware, identity theft, fingerprint and credit card scanning and SIM card access theft, digital fingerprint acquisition. The session showed how building an anti-fraud system based on "machine learning" / "Adaptive learning" and AI solutions can happen. These technologies are particularly relevant for companies providing services in the online channel, a growing group of financial market players.

3. Session "Cyber Enabled Fraud - Monetization of experience;
4. Panel discussion "Business in Times of Lockdown."

Here, representatives of various financial industries shared the common view that the easiest environment for fraudsters and hackers is precisely the work of representatives of financial institutions at home (home office). In such an environment there are, among other things, limited ability to focus, lack of quick access to colleagues = including those in the IT department ("behind the wall") so you can't quickly ask them about, for example, a suspicious email, often inferior equipment used for various applications, less or no network/VPN/firewall security, distraction. Also mentioned were:

• specific translations of spoofing,
• "actions on covid" that have affected insurers, including in terms of claims processes;
• features of the insurance fracas,
• the issue of falsifying the identities of company representatives (board of directors, proxies, attorneys) - where there is limited ability to physically verify identities on contracts and instructions during the lockdown,
• scams on the use of a reliable company for luxury car rentals (after uch prior leasing),
• factoring issues. Here, among other things, about the fact that in periods of crisis, "professional" fraudsters appear alongside the activating "professional" fraudsters ad hoc", because the difficult situation sometimes pushes even honest companies into the gray zone. Because of the lockdown in the early days, there was a strong fear in the industry that there would be a gap with customers, lack of liquidity, normal customers would go "to the wrong side of the power." After all, a good customer who decides to factoring fraud hurts the most;
• Insurance industry protection methods such as automatic analysis of images in the insurer's database.

5. Networking rooms

In order to draw out the "max" for Blog readers, I also took part in networking room discussions, especially the SAS Institute room, in order to question representatives about the application of the company's solutions to the factoring industry. From my perspective (and probably the industry's as well), the most interesting topic is the potential application of product solutions in a manner dedicated to the factoring industry in such a way as to automatically catch anomalies in VAT invoices reported for financing by applications. At issue are such "anomalies" as:

• Incompatibility of the transaction with the PKD of the factor / recipient;
• "stuffing" a larger unit quantity of goods/services on a single invoice;
• Overvalued invoices, inflated unit prices;
• significantly different rates from those used previously;
• Incompatibility of the factoring clause;
• inconsistency of signatures;
• catching automatically pasted signatures;
• catching modified / pasted fields on invoices, not from the original (e.g. pasted factoring clause, modified invoice value);
• Verifying the consistency of the VAT invoice with the WZ document;

From the discussions in the networking room, each of these types of solutions is possible to develop and implement, which is an interesting perspective for strengthening the factoring company's anti-fraud system in terms of creating a functional tool for selecting suspicious transactions for further manual/personal verification.

6. Panel "pre- and post-pandemic damage"

Next, the "pre- and post-pandemic damage" panel discussed the BIK anti-fraud platform, including sectoral data exchange, resources including the Information Base - Verification (BIOW) system bringing together credit applications, application data status, credit decisions (basic information resources), CSO/CEIDG database, reference data, cross-check (additional information resources). Interestingly, "cross-check" can include factoring in addition to corporate loans, guarantees, leases, investment loans. From the framework of information about the scale of development of the platform including its clients, it was pointed out that there are at least 3 factoring companies within the framework of started projects and signed contracts. Also mentioned was the Cyber Fraud Detection platform - online channel protection. PAF statistics during the covid-19 period were presented.

7. An overview of the regulations of the pandemic period.

This was followed by a Review of Pandemic Regulations vs. Risk of Abuse, where it was mentioned, among other things, shield fraud (bots, fictitious hiring of people to obtain subsidies, etc.), problems of interpreting regulations on, for example, credit vacations, enforcement restrictions, etc.

For event details and program, visit official Congress website.

Photo rights: Union of Financial Enterprises in Poland.