Financial services firms at greatest risk of supplier fraud

Businesses in the financial services industry are more likely to be the victim of supplier fraud than firms in any other sector, according to new research.


KPMG has published a new report in conjunction with Astrus Insights that involved the analysis of 8,000 due diligence reports from around the world to find out which organisations are most at risk from supplier fraud, as well as what exactly the greatest threats are.


Coming out on top were banks and other financial corporations, which were found to be most at risk – particularly from the actions of dishonest humans.



Here, we take a look at why this is the case, and how banks can prevent themselves from being the victim of further supplier fraud in the future.

Risky business

Across all industries – but more so among banks and other financial services companies – KPMG found that the biggest business risk was getting caught up in fraudulent practices, which beat money laundering, the violation of regulations and business disputes.


While banks may be able to keep tabs on their in-house operations to ensure they are not increasing their own risk profile, when third parties come into the picture, it is not always easy for them to keep risk to a minimum.


However, ultimately, it is risk managers, company directors and others in chief executive positions that have the power to limit the level of risk facing an organisation, meaning supplier visibility is key to allow them to make the best possible decisions for their firms.


Yet, on the other hand, it is also these individuals who are most likely to allow fraudulent practices to take place in their own company, so bank leaders need to exercise extra due diligence when dealing with people in the same position as themselves at their supplier organisations.


In fact, KPMG found that more than two-thirds (68 per cent) of red flag reports in the financial services industry that have been recorded since 2009 related to negative or disreputable information on particular individuals in management roles at supplier firms.


David Eastwood, forensic partner at KPMG, commented: “Fraudsters pose, in equal measure, the most sinister and most clandestine of risks which banks must be alert to when entering into business arrangements. In many jurisdictions, it can be a challenge to accurately identify shareholders and ultimate beneficial owners.


“This information is often not readily available on corporate filings and the use of proxy or nominee shareholders or bearer shares can confuse matters.


“However, regulators have made it clear that financial institutions should seek to unmask the individuals behind the organisations they deal with; ultimately, it is people that pay or receive bribes, launder money or commit fraud, not legal entities.”

Preventing future fraud

With this in mind, it is vital that banks and other financial services organisations have a strategy and specialists in place to fight supplier fraud and keep their risk profile to an absolute minimum.


Risk management experts are in increasingly high demand as data breaches and other forms of fraud become more widely-publicised than ever before, and in today’s age of social media, the reputational damage of supplier fraud can be long-lasting and potentially even irreparable.


Recruiting experienced compliance and risk specialists could help to lower banks’ risk profiles, alongside allowing organisations to allocate more time and resources to seeking out and dealing with supplier fraud.


Our Market Reports combineĀ a review of the prevailing conditions in the compliance recruitment market with the results of a comprehensive compensation survey, covering both permanent and contract compliance professionals.ADNFCR-1684-ID-801811774-ADNFCR