Unit 10: Legal Challenges in Banking Business LH 3
Banking fraud
Cyber-crime
Innovative product
Anti-money laundering
Electronic banking,
Global access of banking services
Concepts of Banking Frauds
Banking fraud is a type of financial crime that
involves the use of illegal or deceptive (misleading)
practices to obtain money or other valuable assets from
a bank, financial institution, or their customers.
Banking fraud refers to any criminal activity or
deception that is committed against a financial
institution or its customers with the intention of
obtaining financial gain.
It can involve a wide range of fraudulent activities,
including embezzlement, identity theft, forgery
(imitation of documents and signature), cybercrime,
and money laundering.
Characteristics
1. Deception
Fraudsters often use deception to trick banks or customers
They try to access to funds or sensitive information.
2. Financial Gain
The primary motive behind banking fraud is financial gain, which can be
achieved through various means, such as stealing money or gaining access to
financial accounts.
3. Complex Networks
Banking fraud is often carried out by a group of people who work together in
a coordinated effort to deceive banks and customers.
4. Rapidly Evolving
As technology evolves, fraudsters also adapt and find new ways to carry out
their activities.
4. Difficult to Detect
Banking fraud is often difficult to detect as fraudsters are becoming increasingly
sophisticated in their techniques.
Types
1. Identity theft: This involves the use of another person's
personal information, such as their name, social Security
number, and bank account information, to obtain access to
their funds or open new accounts.
2. Check fraud: This involves the use of counterfeit or stolen
checks to withdraw money from a bank account or to make
unauthorized purchases.
3. Credit/debit card fraud: This involves the unauthorized use of
credit or debit card information to make purchases or
withdraw funds.
4. Phishing scams: This involves sending emails, text messages,
or phone calls to trick people into providing their personal
information, such as login credentials, passwords, and Social
Security numbers.
Types
5. Loan fraud: This involves obtaining a loan through fraudulent
means, such as providing false information about income or
employment.
6. Wire fraud: This involves the use of electronic communication
to deceive someone into transferring money to a fraudulent
account.
7. Insider fraud: This involves employees of a bank or financial
institution using their access to carry out fraudulent activities.
8. ATM skimming: This involves the use of a device that is
attached to an ATM to capture credit or debit card information
when a user swipes their card.
9. Cybercrime: This involves the use of computers or other
electronic devices to carry out fraudulent activities, such as
hacking into a bank's system to steal money or personal information.
Cyber Crime
Cybercrime is a criminal activity that is carried out using the
internet, computer networks, or other digital technologies.
Cybercriminals use digital tools to target individuals,
organizations, or entire networks with the aim of stealing
data, money, or disrupting operations.
Cybercrime is a growing problem, with cybercriminals becoming
increasingly sophisticated in their techniques and attacks.
The anonymity provided by the internet and the global reach of
digital technologies make it easier for cybercriminals to carry out
their activities with little fear of getting caught.
Cyber Crime in Financial Institutions
Cybercrime in financial institutions refers
to criminal activities that are carried out
using the internet, computer networks,
or other digital technologies against
financial institutions such as banks,
credit unions, and other financial service
providers.
Types of Cyber Crime in Financial Institutions
1. Phishing Scams: Cybercriminals may send fraudulent emails or
texts to customers of a financial institution, trying to trick them
into revealing personal information such as passwords, bank
account numbers, and Social Security numbers.
2. Malware Attacks: Malware is malicious software that can infect
a computer system, causing damage or stealing sensitive
information. Cybercriminals may use malware to steal login
credentials or to gain unauthorized access to a financial institution's
computer systems.
3. Payment Card Fraud: Cybercriminals may steal payment card
information, such as credit or debit card numbers, and use this
information to make unauthorized purchases or withdraw money
from ATMs.
Tackling Banking Fraud and Cyber Crime in BFI
1. Implement Robust Cybersecurity Technologies: Financial
institutions should invest in robust cybersecurity
technologies such as firewalls, intrusion detection systems,
encryption (secret codes), and multi-factor authentication
to prevent unauthorized access to their systems.
2. Develop and Enforce Security Policies: Financial
institutions should develop and enforce security policies and
procedures that cover areas such as password management,
data protection, and access control.
3. Educate Employees: Financial institutions should provide
training and education to their employees on cybersecurity
best practices and how to identify and report suspicious
activities.
Cyber Law of Nepal –
• Prior to 2004, cyber crimes were dealt under the Public
Offence Act.
• Electronic Transaction Act (ETA) 2063 was passed in 2004
which is known as the cyber law
• The law has not been adequately amended as a need of time.
Crimes as per the “Electronics Transaction Act-2063”
• Paragraph-9 describes the guilt and Surcharge/extra charge
regarding computers abuse
• Article -44: Piracy, Amendment or Destruction of Computer
Source =>3 years jail or Rs. 200000 as Surcharge
• Article-45: Access to unauthorized Items =>=> 3 years jail
or Rs. 200000 as Surcharge or BOTH
• Article-46: Damage to Computer Information System =>=>
3 years jail or Rs. 200000 as Surcharge or BOTH
• Article-47: Publishing illegal things in Electronic
Format=>i) 5 years in jail or Rs. 100000 as Surcharge or
BOTH. ii) If the act is repeated punishment is up to 1.5
times of previous
• Article-48: Privacy transgress/misbehave => 2 years jail or
Rs. 100000 as Surcharge or BOTH
• Article-49: publishing false information=> 2 years jail or Rs.
100000 as Surcharge or BOTH
• Article-50: Publishing False License or Certificate=>i) 2
years in jail or Rs. 100000 as Surcharge or BOTH ii) If
incomplete, uptoRs 100000 as Surcharge iii) If consciously
done, ) 2 years jail or Rs. 100000 as Surcharge or BOTH
Article-51: Not admitting assigned description or document=>
Surcharge up to 50000
Article-52: Computer fraud/illegal=>) 2 years jail or Rs. 100000 as
Surcharge or BOTH
Article-53: Encouraging for committing cyber crime=>) 6-month jail
or Rs. 50000 as Surcharge or
Article-54: Helper will be assigned half punishment than Committer
Article-55: Cybercrime committed Out of Nepal: Issue will be
forwarded as per the law
Article-56: confiscation: Used computers, computer system, floppy
disk, CDs or related equipment is being confiscated
Article-57: Guilt from an Organized Institution: Responsible Person
will be taken as guilt.
Article-58: Others=> 6-month jail or Rs. 50000 as Surcharge or
BOTH
Anti Money Laundering
Anti-Money Laundering (AML) refers to the set of laws,
regulations, and procedures that financial institutions and
other regulated entities must follow to prevent, detect, and
report money laundering activities.
Money laundering is the process of disguising the proceeds
of criminal activity by making them appear to have come
from a legitimate source. Criminals may engage in money
laundering to avoid detection, hide the source of their
illegal income, and avoid prosecution.
AML regulations require financial institutions to
implement policies and procedures to prevent money
laundering and to report suspicious activities to the
appropriate authorities.
Some of the key features of AML regulations include:
1. Customer Due Diligence (CDD): Financial institutions are required to verify
the identity of their customers and to assess the risk of money laundering
associated with their activities.
2. Suspicious Activity Monitoring and Reporting: Financial institutions are
required to monitor customer transactions and to report any suspicious
activities to the relevant authorities.
3. Record-Keeping Requirements: Financial institutions are required to maintain
records of customer transactions and to make them available to regulators upon
request.
4. Training and Education: Financial institutions are required to provide training
and education to their employees on AML regulations and best practices.
Innovative Products
Innovative banking products are new and creative financial
products that financial institutions develop and offer to
their customers.
These products are designed to meet the changing needs
and preferences of customers and to provide enhanced
convenience, flexibility, and accessibility.
Innovative banking products often leverage the latest
technologies and digital platforms to deliver services that
are more efficient, user-friendly, and personalized.
These products may also be designed to improve financial
inclusion by providing access to financial services to
underserved populations, such as those who are unbanked
or underbanked.
Types of Innovative Banking Products
1. Mobile Banking: Mobile banking allows customers to
access their accounts, make transactions, and perform
other banking activities using their mobile devices. Mobile
banking apps may also include features such as bill payments,
balance inquiries, and remote deposit capture.
2. Digital Wallets: Digital wallets allow customers to store
their credit and debit card information on their mobile
devices and use them to make purchases in-store, online, or in-
app.
3. Peer-to-Peer (P2P) Payment Apps: P2P payment apps
allow customers to transfer money to other individuals
using their mobile devices, without the need for cash or
checks.
Types of Innovative Banking Products
4. Chatbots and Virtual Assistants: Chatbots and virtual assistants use
artificial intelligence (AI) to provide customer service and support
through messaging apps or voice assistants.
5. Online Lending Platforms: Online lending platforms allow borrowers
to apply for loans and receive funding without having to visit a
physical bank branch. These platforms may also use AI and other
technologies to assess creditworthiness and make lending decisions.
7. Robo-Advisors: Robo-advisors use AI and other technologies to
provide automated investment advice and portfolio management
services to customers.
8. Blockchain-Based Products: Blockchain-based products use
distributed ledger technology to provide secure, transparent, and
efficient financial transactions, such as digital currencies and smart
contracts.
Concepts of Electronic Banking
Electronic banking, also known as e-banking or online banking, refers to the
use of electronic channels to perform banking transactions and access banking
services.
It allows customers to access their accounts, transfer funds, pay bills, and
perform other banking activities through a website, mobile app, or other
digital channels.
The concept of electronic banking began in the 1980s with the introduction of
automated teller machines (ATMs), which allowed customers to withdraw cash
and perform other basic banking transactions outside of bank hours.
As technology advanced, so did electronic banking, with the introduction of
online banking in the 1990s and mobile banking in the 2000s.
Today, electronic banking is a fundamental part of the banking industry and
has transformed the way customers interact with their financial institutions.
Customers can perform banking activities from the comfort of their homes,
offices, or even while on the go, without the need to visit a physical bank branch.
Features of E-Banking
1. Convenience: Electronic banking allows customers to
perform banking activities from anywhere, at any time,
without the need to visit a physical bank branch.
2. Accessibility: Electronic banking allows customers to
access their accounts and perform transactions using a
variety of devices, such as computers, smartphones, and
tablets.
3. Security: Electronic banking uses encryption and other
security measures to protect customers' account
information and prevent fraud.
4. Efficiency: Electronic banking allows financial institutions
to streamline their operations and reduce costs associated
with maintaining physical branches.
Global Access of Banking Services
Global access to banking services refers to the ability of people to
access financial services offered by banks and financial institutions
from anywhere in the world.
In today's globalized world, where people frequently travel and conduct
business internationally, having access to banking services regardless
of location is becoming increasingly important.
The expansion of the internet and mobile technology has made it
possible for people to access banking services from anywhere in the
world.
This means that people can manage their finances, transfer money,
pay bills, and access other financial services from their smartphones,
laptops, or tablets, regardless of their location.
This is particularly important for people who travel frequently for work
or leisure and need to access their financial information and make
transactions while on the go.
Features and Importance of Global Access of Banking Services
1. Accessibility: Global access to banking services means that
customers can access their accounts and services from
anywhere in the world, 24/7. This is made possible by online
banking, mobile banking, and other digital banking solutions.
2. Cross-border transactions: Global access to banking services
allows customers to conduct cross-border transactions
easily and securely, including international wire transfers,
foreign currency exchange, and other financial transactions.
3. Customization: Global banks often offer customized
financial solutions that cater to the unique needs of each
customer. This includes customized loan and investment
options, credit cards, and other financial products.
Global Banking Access Services offered
1. International wire transfers: Customers can send and receive money to
and from accounts in other countries.
2. Foreign exchange services: Banks may offer currency exchange services
to customers, allowing them to exchange one currency for another.
3. International payment services: Banks may offer payment services that
enable customers to make payments in different currencies.
4. ATM access: Customers may be able to use their bank's ATMs or partner
ATMs to withdraw cash in different countries.
5. Credit and debit card services: Banks may offer credit and debit cards
that can be used for purchases and cash withdrawals globally.
6. Online banking and mobile banking: Banks may offer online and mobile
banking services that enable customers to manage their accounts and make
transactions from anywhere in the world.
7. Wealth management services: Banks may offer investment and wealth
management services to customers with global assets.