For years, fraud management was seen as the “stepchild” of financial crime compliance: overshadowed by AML and treated as a cost center rather than a core risk discipline. That’s changing. Regulators have begun evaluating banks’ fraud governance—not just their ability to detect and report suspicious activity.
At recent industry conferences, Financial Crimes Partner Jon Glass noted that regulators are asking how banks educate customers about evolving fraud schemes and whether governance frameworks reflect modern threats like synthetic identities and deep-fake scams.
The Shift: From Incident Response to Governance Maturity
Historically, mid-sized banks responded to fraud only after a loss. A major wire fraud or ACH scam would prompt a new policy, a new rule, or another layer of manual review. But without a central framework tying those responses together, the result was a patchwork of controls.
Today, regulators expect structure: steering committees, documented governance and measurable fraud-risk appetite. They’re also asking how fraud integrates with AML, cyber and operational-risk functions—a major gap for many community institutions that separate these teams entirely.
The Emerging Threat Landscape
Fraudsters are exploiting the same tools banks use to innovate, such as AI, automation and the dark web. Identity data is bought and sold in bulk, enabling large-scale account takeovers and “synthetic client” creation. For institutions with limited resources, it’s nearly impossible to track these shifts without dedicated analytics and cross-line coordination.
That’s where proactive assessments come in. A Fraud Risk Assessment surfaces governance, control, and technology weaknesses before they’re exposed by losses or regulators.
What a Strong Fraud Program Looks Like
A mature fraud-risk framework includes:
- Governance: Defined ownership, fraud steering committee, escalation protocols and board-level reporting.
- Data & Analytics: Automated detection models and periodic validation.
- Customer Awareness: Education programs that evolve with new scam typologies.
- Integration: Coordination between AML, fraud, cyber and operations.
- Continuous Improvement: Regular fraud-risk assessments to proactively identify opportunities to prevent losses.
At SolomonEdwards, we combine decades of financial crimes advisory experience with technology-enabled diagnostics to help institutions benchmark maturity and design scalable frameworks.
The Cost of Waiting
Fraud losses are rising industry-wide, but reputational damage often costs more than the incident itself. Examiners are no longer waiting for AML lapses—they’re testing whether banks understand and manage fraud proactively. For mid-sized institutions, now is the time to mature before regulation catches up.
A Smarter Investment
Preventing fraud is always more cost-effective than responding to enforcement. As we’ve observed:
“Even a $200 billion bank can find its fraud program held together with duct tape. The difference now is that regulators are starting to notice.”
By investing in governance today, banks not only protect themselves from fraudsters; they position their institutions for sustainable, regulator-ready growth.
About the Author
Jared is a compliance and risk management executive with more than 17 years of experience in the financial services industry, specializing in BSA/AML operations, financial intelligence and due diligence. He has led large-scale compliance transformations that leveraged automation, robotics and machine learning to strengthen controls and improve efficiency.
To learn more, connect with Jared at jbarnes@solomonedwards.com.
