Asset finance: 4 risks fuelled by the cost-of-living crisis
4 November 2022
Katy Worobec, UK Finance’s managing director of economic crime, recently suggested that levels of bank fraud in the UK should be “considered a national security threat”.
Fuelled by the lingering impact of the pandemic - which saw banks rapidly adapt to offer more online services - and the current cost of living crisis, instances of fraud across the whole financial services sector have risen. With many businesses now feeling the strain, thanks to increased energy, transport and other operational costs, Asset Finance is no exception to this trend.
Here are 4 frauds asset finance providers should be vigilant for as the crisis continues.
1) Ghost assets/asset inflation
Simply put, this is when businesses inflate the value of assets – or create fictitious assets – in order to unlock more funds from lenders. This type of fraud is also often perpetrated alongside liabilities fraud, where businesses deliberately understate the value of their total liabilities register.
2) ID theft/authorisation fraud
In-person visits to verify credentials have decreased since the pandemic, making it easier for cyber fraudsters to clone websites and manipulate data to present as genuine business customers. We could also see an uptick in authorisation fraud whereby requests for asset finance are made by a real employee at the given firm, but without the authorisation to do so (with the intention of defrauding their employer).
3) Phoenix fraud
Limited liability companies facing challenging times and increased debts may be tempted to wind up operations and set up a new company. Which is perfectly legal. But not if this set-up is fraudulently exploited. For example, a company may inflate asset value and understate debt (see point 1) in order to obtain asset finance, only to then transfer those assets to a new business. Debt is now linked to the now defunct operation.
4) Fresh air invoicing
When a company seeks finance against customer invoices before the goods and services detailed in those invoices have been delivered (and with no intention of doing so), this is known as fresh air invoicing. It can also apply to scenarios where invoices are issued fraudulently, i.e., with no accompanying transaction, purely to raise finance.
Frauds perpetrated against asset finance providers are of course not limited to these 4 types, and new scams will undoubtedly evolve as the crisis continues. Making it all the more essential for robust checks as part of the on-boarding process. Particularly as genuine need for finance support is only going to increase over the coming months.
Being able to cross reference application data, in real or near-real time, against risk intelligence databases enables asset finance providers to:
- Provide faster decisions on finance agreements while also mitigating risk exposure – saving process/resource costs, time and avoiding potential fraud loss.
- Quickly identify those businesses that warrant additional investigation.
- Utilise machine learning applications to flag anomalies that may indicate emerging fraud risks based on known customer base and fraud trends.
for more information please contact: Murray.Raw@synectics-solutions.com.
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