Regulators seem helpless, and banks just don’t seem - or want - to get it. What could ever possibly go wrong? 

Digitalization. The measure of finance industry cool and the big bad banking buzzword of the past few years.

Institution after institution, legacy or not, has spent untold billions trying to outdo the other with sleeker APIs and a cavalcade of new, even unexpected functionalities - think cardless QR code ATM withdrawals.

Nothing New

But even as everyone tries to get the paper out of their processes and the floating points in, old-school bankers tiptoe around it in reverent, hushed tones, treating it as the exclusive preserve of millennials and Gen Z.

Even though we are well into the third decade of individualized, fingertip-powered banking, as with the former miracle of social media, things look a touch threadbare after the first flush of naïve enthusiasm.

Fraud Epidemic

Some call it a new age Pandora’s as the former gets blamed in some quarters for a very unpretty dismantling of Western democracies while the latter appears to be prompting an epidemic of global fraud, something that finews.asia has written about and commented at length.

But this is not that new. In the 1990s it was done by email, and before, that, snail mail. Someone from Nigeria claiming to be a prince wanted to transfer millions of dollars to you for no reason except for the fact that you were unspeakably honorable. There was just one little catch. They needed your banking account details or credit card number.

Dark Underbelly

Since then, we have been buried in a veritable industry full of hidden links, scammers, phishing, and, now, deepfakes. Who hasn’t taken a cursory glance at a potential buyer on an online market forum and seen a fresh 2023 profile, no updates, and a very anodyne stock image - instantly knowing they were dealing with the dark underbelly of finance?

Tidal Wave

At the same time, regulators, and governments have been discussing the tidal wave of crime overrunning many countries and cities in the region, including the financial hubs of Hong Kong and Singapore. Senior officials have raised the alarm in speeches, authorities have built apps and the police have issued warnings.

We even maintained earlier this year that it could even end up slowing bank digitalization efforts if more wasn’t done about it. 

No Critical Thought

Still, much of it appears to have fallen on deaf ears as residents get caught out repeatedly - given the increasing sophistication of fraudsters and the tools they use.

We also don’t seem to have very much critical thinking when it comes to the promise of money and returns online, seeing the dollar sign in our minds first, above and beyond everything else.

Frustrated Down Under

But it seems the banking system is just about as clueless as we are. The news published Monday on finews.asia that HSBC was being sued in Australia over scam-related failures is a case in point.

Many banks truly don’t get it – at least not yet, as the statement by the country’s securities and investments commission reeks of impatience while describing a sorry state of affairs.

Unbelievable Duration

Not for the first time, the UK-based bank ostensibly was caught out for poor detective and preventative controls. But more important than that, it showed little reaction to a significant escalation of incidents starting from the middle of 2023 when scammers managed to get access to accounts by impersonating bank staff members.

Investigation of scamming reports. Average length: 145 days. Restoring full client access to bank accounts? Average length: 95 days.


Locked Out

In one particularly glaring case, a hapless customer did not get access back for 542 days. Let’s just hope they were independently wealthy or had another bank to go to  - as good luck with any rent, taxes, utilities, or mortgages that were due at that time.

You can just see that specific case floating through one committee to another at the country level, and then regionally, and maybe globally – with everybody at a loss about what to do.

Tough Nut to Crack

But it also illustrates an important truth. Protecting clients from scammers is going to be a tough banking nut to crack – as victims voluntarily make fraudulent payments without them necessarily knowing they are doing so and once the money is gone, it is almost impossible to get back.

To get defrauded in our age means that everything happens silently and is above board until it is way too late.

Quizzical Looks

What is happening now is also somewhat reminiscent of when financial crime prevention first reared its head internationally, with institutions outside the US belatedly prodded to figure out how to fight it from the 1990s on. 

Back then, getting banks to check rationales for repetitive ATM withdrawals and circular payment flows would draw quizzical, incomprehensible looks from bank management, a lesson very painfully learned by HSBC itself in 2012.

Larger Impact

However, the current wave of fraud could end up having a much larger impact on the industry than financial crime ever will have. If they do not get their hands around it all, it could potentially be an unexpected trigger for the next major financial crisis.

It could prompt of spate of bank runs, particularly if clients lose their confidence that banks aren’t in a position to meaningfully protect them and return funds seized by fraud. As we know with Credit Suisse in 2023, digital bank runs come thick and fast.