Cyber Crime and Prevention

Introduction :

With the advances in information technology, most banks in India have migrated to core banking platforms and have moved transactions to payment cards (debit and credit cards) and to electronic channels like ATMs, Internet Banking and Mobile Banking. Fraudsters have also followed customers into this space. However, the response of most of the banks to frauds in these areas needs further improvement, thereby avoiding putting the entire onus on the customer. There is also a lack of clarity amongst banks on the reporting of these instances as frauds.

A need is therefore felt to have an industry wide framework on fraud governance with particular emphasis on tackling electronic channel based frauds. This note endeavours to bring out the challenges and suggests a framework which can be implemented across banks to effectively tackle the electronic fraud menace. It would be useful to recall the definition of fraud at this stage.

'A deliberate act of omission or commission by any person, carried out in the course of a banking transaction or in the books of accounts maintained manually or under computer system in banks, resulting into wrongful gain to any person for a temporary period or otherwise, with or without any monetary loss to the bank’.

This definition has been recommended as per para 9.1 of the Report of the Study Group on Large Value Bank Frauds set up by the Reserve Bank of India in 1997. It follows that like other bank frauds, various IT related frauds need to get captured through the fraud reporting system and banks should take adequate steps to mitigate such risks.

1. Roles/Responsibilities and Organizational structure for fraud risk management:

(a) Indian banks follow the RBI guideline of reporting all frauds above Rs.1 crore to their respective Audit Committee of the Board. Apart from this, banks are also putting up a detailed annual review of frauds to their Audit Committee of the Board.  The Board for Financial Supervision (BFS) of RBI...