SARB flags digital banking platforms as posing risks

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The South African Reserve Bank (SARB) has sounded warning bells on cyber crime and emerging technologies as growing threats to South Africa’s banking sector.

A recent study by the central bank shows a number of threats are increasing vulnerabilities in the banking sector, including internet and mobile banking platforms, which SARB says may be exploited to facilitate money-laundering and fund terrorism.

SARB’s new report ranks internet and mobile banking platforms among the digital threats that pose the risk of reputational damage internationally.

The central bank assessed 34 banks on money-laundering, terrorist financing and proliferation financing risk in the banking sector.

South Africa has 34 licensed deposit-taking entities. These comprise five large banks, nine medium to small locally-controlled banks, 17 branches of foreign banks and foreign-controlled banks, and three mutual banks.

The report notes over 90% of the banking sector offers online banking services (internet banking) mobile application banking (using technological applications), with the exception of one mutual bank.

SARB says notwithstanding the fact that online and mobile banking offer faster transactions, the platforms also appeal to criminals.

“These platforms increase the money-laundering / terrorist funding vulnerabilities, as the banks face the risk of being unable to reliably identify and verify clients through remote or digital onboarding processes,” reads the report.

“Although online banking offers faster transactions and more convenient options for banking, these features are also attractive to criminals. Online features can hide the true identity of clients (which in-branch visits would have detected), and these features can also hide the true destination and beneficiaries of funds.”

SARB says most clients on-boarded through digital channels (77.5%) were banked by the large banks. This was followed by locally-controlled banks (22.3%) and foreign branches (0.03%). Only one of the three mutual banks onboarded clients digitally.

Online criminal aggression

Cyber crime and emerging technologies also pose risks, SARB notes in its report, adding they may be used to commit crimes on banks.

In the last 24 months, according to SARB, in locally-controlled banks, 1 237 incidents of cyber crime and online fraud attempts were recorded.

The SARB says these attempts averaged 137 incidents per bank, while three of the nine banks did not have any attacks.

In the last two years, the big banks incurred net losses of R322.1 million due to cyber crime or online fraud attacks. Locally-controlled banks lost about R159.1 million, of which R7.9 million was due to staff collusion.

The report says: “Cyber crime is on the rise in South Africa, with ransomware payments being demanded by cyber criminals. A study by Surfshark, using FBI data to develop an index, revealed South Africa to be seventh in terms of the number of cyber crime victims.

“Cyber crime may harm someone’s security and financial health. Other forms of fraud may be facilitated using computer systems, including bank fraud, carding, identity theft, extortion and theft of classified information. These types of crime often result in the loss of private information or monetary information.”

In the 24 months surveyed by SARB, no cyber crime and online fraud attacks or attempts were recorded by mutual banks.

Ten banks within the foreign branches and foreign-controlled banks list did not experience any cyber crime or online fraud attempts, while three banks had one to two attempts, two banks had 56 attempts and one bank had 664 attempts.

However, digital banks had fewer incidents of cyber crime or online fraud compared to the traditional banks’ number of cyber crime and online fraud attacks or attempts in the last 24 months.

SARB says ATMs are also a concern. “Some advanced ATMs accept cash deposits, which limits identification of the client and the source of funds. Criminals use ATMs to place the proceeds of crime into the banking system, which increases the money-laundering / terrorism funding vulnerabilities for the whole sector.”

In SA, 35% of banks have ATM facilities. This includes 33% of the large banks, 50% of locally-controlled banks, 17% of branches of foreign banks and subsidiaries, and none of the mutual banks, according to SARB.

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