Risk Management: Preventing fraud. ¿What are the central securities depositories doing to mitigate this risk? Santiago de Chile, April 4, 2014

Risk Management: Preventing fraud.

¿What are the central securities depositories doing to mitigate this risk?

Santiago de Chile, April 4, 2014

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Content

I. Contextualization

1. ¿What is fraud?2. ¿Who is the typical fraudster?3. Cost of the fraud

II. Risk of fraud in the industry

1. Kinds of fraud the industry is facing2. Industry-specific risk

III. Mitigating these risks

1. Fraud management system2. Prevention, detection and response mechanisms


¿What is fraud?

Generally, fraud is described as a deliberate act of abuse of trust, taking advantage of swindles, it is done for profit without the consent of the concerned company.


Profile of the typical banking and financial sector fraudster


Economic damage caused by fraudulent activities

The damage caused by financial fraud amount to 3.5 trillion USD globally. The main reason of impact in the financial industry is given by:

0% 5% 10% 15% 20% 25% 30%

9%

11%

14%

18%

22%

26%Management override

Overconfidence and lack of supervision

Avarice

Weak ethical culture

Financial goals pressures

Economic context pressures


.

Most common kinds of fraud

Typically, in the financial industry fraud committed by:


Irregularities related to theft of money using invoices

Robbing money using invoices

False sales and/or non-registered sales.Sales of the investors securities hiding or altering the true records.

Payment alteration and/or non-registered payments.Dividend payments made to third parties unidentified.

Alteration and/or submission of false information.The lack of detection mechanisms for false information, allows the third party investors accounts to be violated.

Lack of integrity of the information stored in the database.The lack of integrity in the data, leads the information in databases to be inaccurate, incorrect and easily lost.


Irregularities related to fraudulent disbursements

Fraudulent Disbursements

Alteration and/or duplication of investors accounts.This kind of illicit fact is used to make double, parallel or bartered payments.

Lack of control over unidentified investors.The lack of controls over unidentified investors, allows the investors accounts to be easier to perpetuate.

Alteration of beneficiaries.Changes the beneficiary information in order to make securities' sales, or third party payments

Lack of communication and/or control with the emitter.A non-approved dividend payments by the issuer, generating erroneous payments or benefiting a third party.


Irregularities related to cybercrime

Cybercrime

Unauthorized access (Social engineering & Hacking).The lack of strong controls allows the access to confidential information.

Identity theft.Investors’ identity theft in order to generate payments to a third party.

Intercept information.Through controls penetration or social engineering.

Websites’ identity theft.Phishing - Computer Abuse in order to acquire sensitive information from third parties.


Companies in the financial industry that has a fraud risk management program

0% 10% 20% 30% 40% 50% 60% 70% 80%

6%

66%

28%

6%

71%

23%

2011 2013

Yes

No

Do not know


Mitigating the fraud risk

Fraud risk management program:

Prevention Detection Response

Supervised by: Board of Directors / Audit Committee, control and compliance areas (Risk Management and

Internal Audit)

Fraud Risk Assessment

Company network firewalls

Due Diligence of employees and

third parties

Anti-corruption policies and

manuals

Training the internal audit team

Anonymous reporting

mechanisms (line ethics)

Audit supervision and

control areas

Proactive Data Analysis (DA)

Data mining of critical business

Monitoring routines

Internal investigation

protocols

Fraud risk matrix for all the

organization

Corrective actions protocol

Thanks

Arturo del CastilloPartnerKPMG Advisory Services Ltd.Tel: +57 1 618 8027 [email protected]

Documents

Risk Management: Preventing fraud. ¿What are the central securities depositories doing to mitigate this risk? Santiago de Chile, April 4, 2014