Artificial intelligence (AI) has become a vital asset in the finance industry, but it also presents new challenges for financial institutions. While AI brings innovation and efficiency, it has also given rise to sophisticated forms of fraud that many institutions are ill-equipped to handle.
The accessibility of AI tools has made it difficult for financial institutions to accurately identify and separate AI fraud from other types of fraudulent activities. This lack of distinction creates a blind spot, making it challenging to comprehend the extent and impact of AI-driven fraud.
To shed light on this issue, Cointelegraph interviewed Ari Jacoby, CEO of Deduce and an expert in AI fraud. Jacoby provided insights on how financial institutions can detect and prevent AI fraud, as well as the potential impact of its rapid growth on the industry as a whole.
Identifying AI Fraud
The main challenge lies in the fact that most financial institutions cannot distinguish AI-generated fraud from other types of fraud. Jacoby explained that the combination of genuine personal information, such as social security numbers and birthdates, with socially engineered email addresses and legitimate phone numbers, makes it nearly impossible for legacy systems to detect AI fraud.
This makes it exceptionally difficult to prevent and address major fraud incidents, especially as new forms of fraud continue to emerge. According to Jacoby, the rapidly advancing technology and evolving skill set of AI fraudsters require financial institutions to stay ahead of the game and understand how AI plays a role in fraud cases.
Finding Solutions
Jacoby emphasized the need for financial institutions to analyze online activity patterns of individuals and groups to identify fraudulent actions that may appear legitimate. Traditional fraud prevention methods are no longer sufficient, and institutions must adopt a “relentlessly proactive” approach to combat the growing threat of AI-generated fraud.
Implementing a layered program that detects existing fraudsters within the customer base while preventing the infiltration of new fake identities is crucial. Financial fraud teams are now shifting their risk assessment, considering previously low-risk activities as medium risk, and taking additional steps to prevent fraud at all stages of the customer life cycle.
The Rise of AI-Generated Fraud
Jacoby highlighted that fraud has increased by 20% year-over-year, with the prevalence of synthetic identities rising due to AI. This problem extends beyond traditional financial institutions and has the potential to impact crypto exchange KYC measures and cybersecurity as a whole.
Regulators are already taking notice of this issue. The United States Commodity Futures Trading Commission (CFTC) Commissioner Kristin Johnson has proposed three regulations to address the use of AI technologies in financial markets, including heightened penalties for those who use AI to engage in fraud, market manipulation, or regulatory evasion.
Without prompt action from financial institutions and regulators, finding effective solutions to combat AI fraud may become increasingly challenging.
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