Banks told to set up digital fraud risk management units

KARACHI: The State Bank of Pakistan (SBP) announcing the measures to enhance security of digital banking services has asked banks to establish digital fraud risk management units under the supervision of senior management.

The rapid growth in digital banking products and services supports digital transformation of the financial landscape and enables the banks and MFBs to cater to the growing needs of banking customers.

However, adoption of digitization needs to be supplemented with necessary controls to mitigate the risk of fraudulent activities. Therefore, the State Bank of Pakistan (SBP) has been advising the banks and MFBs to implement appropriate controls and remedial measures for enhancing security of their digital banking products and services.

In this continuum, to enhance the security of digital banking products and services, the SBP has prepared a set of control measures for banks and MFBs.

The SBP has advised banks and MFBs to develop a comprehensive plan with monthly milestones, to be implemented by December 31, 2023, duly approved by the Chief Executive Officer (CEO) and submit the same to their relevant Banking Supervision Department (BSD) in SBP, within thirty (30) days. Thereafter, a monthly progress report will be submitted to the concerned BSD within ten (10) days from the close of each calendar month.

The State Bank has warned that Banks and MFBs failing to implement these controls within the stipulated timeline will be liable to compensate their victim customer(s) within three (3) working days of the reporting of fraud, apart from any enforcement action under the applicable laws & regulations.

As per the SBP guidelines, the banks and MFBs are required to offer transactional insurance to their customer at reasonable and competitive charges, the insurance should be activated upon explicit customer’s consent or request.

Financial Institution will be responsible for loss of any customer funds due to delay on their part in taking timely remedial and control measures such as delay in blocking digital channels, delay in raising dispute requests, etc. In this regard, the FIs shall compensate in whole the customers for such losses.

FIs will formulate Digital Fraud Prevention Policy to protect their account holders and ensure effective communication of such policy and allocate and provide necessary resources, systems and people, to build and update the capacity by making adequate investment in digital fraud risk management.

FIs will also ensure identification and implementation of digital fraud risk controls through compliance assurance and implement fraud control related KPIs. vi. Ensure that the customer education and awareness by the FIs’ management and operations gain special focus from top to bottom to combat frauds in digital banking services through cyber channels.

The SBP has asked the banks and MFBs to design, review and continuously improve end-to-end processes of digital fraud risk management and customer complaint management in consultation with relevant stakeholders.

Copyright Business Recorder, 2023