Basel Committee publishes discussion paper on digital fraud

The BCBS has published a discussion paper on digital fraud and its impact on the banking sector. The paper aims to provide a high-level assessment of the supervisory and financial stability implications of digital fraud for the global banking system.
The paper defines digital fraud as the use of digital technologies to commit fraudulent activities, such as online fraud, cybercrime, and fraudulent use of digital platforms. It highlights the increasing risks to bank soundness and financial stability posed by digital fraud, which can be committed at a greater scale and scope than previously due to the ongoing digitalization of finance.
The paper is structured around three broad sets of questions:
What is digital fraud? What are its main defining features? How does digital fraud affect banks and how should policymakers think about it?
The paper discusses how digitalisation enables fraudsters to be more agile, sophisticated, and industrialised, exploiting vulnerabilities in online banking platforms, payment systems, and customer authentication methods. The paper also highlights how the Covid-19 pandemic has accelerated changes in customer behaviour and increased the scope and nature of fraud risks.
What are the supervisory and financial stability implications? How are supervision and financial stability affected by digital fraud? Why is digital fraud of relevance to the Committee and its mandate? What empirical data are available to assess its magnitude and prevalence?
The paper analyses how digital fraud can undermine customer trust and confidence in banks, erode banks‘ profitability and capital adequacy, disrupt the provision of critical banking services, and pose contagion risks to other financial institutions and markets. The paper also explains how digital fraud falls within the scope of the Committee’s mandate to enhance global financial stability by strengthening the regulation, supervision, and practices of banks.
What is being done to mitigate digital fraud risks within the banking sector? What initiatives have been pursued, or are planned, at the domestic, regional, and global level?
The paper surveys the existing and planned initiatives to mitigate digital fraud risks within the banking sector at various levels, involving various stakeholders such as banks, supervisors, customers, government agencies, non-profit organisations, technology companies, and trade associations. The paper identifies some common themes and challenges in these initiatives, such as enhancing data quality and sharing, strengthening customer awareness and protection, promoting collaboration and coordination, and ensuring proportionality and consistency.
The paper also highlights the importance of engaging with a broad range of stakeholders beyond banks and bank supervisors to better understand the status of digital fraud and its mitigants. It therefore encourages comments and feedback from interested parties by 16 February 2024 via the online comment upload function, and all submissions will be published on the BIS website unless a respondent specifically requests confidential treatment.