Home Markets Fighting Back Against Financial Fraud: Empowering Individuals as the First Line of Defense

Fighting Back Against Financial Fraud: Empowering Individuals as the First Line of Defense

by Prabhakar Tiwari (Chief Growth Officer, Angel One Limited)
Jul 27, 2023
Fighting Back Against Financial Fraud: Empowering Individuals as the First Line of Defense, Market, KonexioNetwork.com

Owing to the unprecedented advancements in technology, trading and investment operations have become efficient and sophisticated. Digitalisation has led to widespread expansion of investment opportunities as onboarding on a trading app and the process of investment has become simpler than ever. This, however, has been combined with potential opportunities for unscrupulous actors.

Technology has been an enabler in various ways, but there has been a substantial increase in the number of frauds and scams in financial services globally as well as in India. Some of the common examples include fake investment opportunities, pump-and-dump schemes and phishing scams etc.. For instance, a recent cases involving business people from Karnataka had people losing lakhs of rupees, in these fake schemes. This could be just the tip of the iceberg, as the quantum of such fraud could be massive, affecting many investors and losing significantly higher money.

The best way to fight fraud is to empower individual investors with the understanding of these kind of threats, and here technology plays a significant role in creating investor awareness, reporting fraud and eventually preventing scams. Fintech companies in the brokerage space have been pivotal in adopting the latest digital technology to ensure that investment processes become more safe and security measures are in place.

Here’s how Fintech companies are trying to stay ahead of the scamsters and are empowering investors:

Enlighten investors to fight scamsters

Fintech companies offer extensive programs to disseminate a basic understanding of common frauds and the role of regulators (such as SEBI, IRDA etc) based on which any deviations could be identified. Through the latest tools, such as short videos, emailers, webinars and even social media posts, investors are made aware of prevalent scams and practices in the market. AI-based chatbots have further improved user interaction, enabling investors to easily communicate with a representative through WhatsApp or any other enabled messaging application when in doubt due to certain unexpected messages or emails. Some companies have also taken help from finfluencers as part of their investor education program, resulting in increasing knowledge about fraudulent practices and common scams.

Creating informative content and social media campaigns play an effective role in explaining the different kinds of fraud that users might encounter. These have also helped them in fact-checking any pump-and-dump or Ponzi schemes or any such other fraudulent practices.

Tech-enabled tools are the new fraud busters

The advancement in technologies like AI and ML, along with blockchain, has been leveraged by some of the companies to develop different tools such as simulations, quizzes and updates. Gamification of learning (of potential fraud and threats) is a powerful tool. Simulations help investors understand how fraudsters work and how to detect fraudulent activities / practices. Quizzes can be employed to evaluate and reinforce their understanding of the learned content. The objective is to use every opportunity to interact with investors and let them know about the different kinds of potential fraudulent practices adopted by the fraudsters and the means to avoid them.

Safeguarding trading for scam-proof wealth creation

With enhanced system infrastructure through improved security measures and carrying out regular audits, brokerage houses have made an effort to stay ahead of scamsters and fraudsters. Ensuring that the trading platform has robust security measures in place and keeping it updated can protect investors from many frauds. Additionally, educating users about these security features and how to use them effectively is equally important.

Robust reporting to rule out fraudsters

The overall strength of a risk management and fraud-detection system can be improved significantly with a strong reporting mechanism. Fintech companies have simplified the process of fraud reporting to a significant level. Besides using the trading app, it is possible to report any such activity through social media, WhatsApp and AI-enabled CRM. Besides implementing sophisticated tools (such as ML) that detect and warn users of any irregular or doubtful activity, the process of data sharing and collaboration has been improved and, in some cases, automated as well.

Companies are increasingly trying to use real-time information for monitoring alerts and to intimate users before they fall victim to any deceitful efforts. Some brokerage firms have also explored using blockchain technology to improve the transparency and traceability of transactions. Brokerage firms have also responded by improving their compliance processes in collaboration with Regulators in the detection and reporting of any such attempts.

Building an investor-friendly broking space

In conclusion, empowering individuals to identify and report fraud in the financial services space is an essential step towards creating a more transparent and trustworthy financial ecosystem. The alarming rise in fraudulent activities necessitates the active participation of individuals as the first line of defence. By equipping them with the necessary tools, knowledge and support, we can foster a culture of vigilance and accountability. Regulators, broking firms and other stakeholders must collaborate to provide individuals with accessible channels for reporting fraud. Additionally, implementing advanced technological solutions such as AI-based fraud detection systems can aid in the identification and prevention of fraudulent activities. Together, we can work towards a future where fraudulent practices are identified and contained swiftly, ensuring a secured and safe investing environment for all investors.