Fraud Trends that Brokers Should Watch for in 2023

Many experts have stated that fraudsters are expected to benefit from AI in 2023. How is this going to affect brokers and institutions?

While forex trading can be a legitimate form of investment to make profits, unfortunately, it is also a popular target for many types of scams. Anyone can be impacted by fraud, including both traders and brokers. As the internet and social media make the world smaller and closer together, they also increase the chance for the innocent to rub shoulders with the fraudster.

2023 is the year of AI-based development and economic vulnerability, and the trends have apparently infected frauds within the trading sector. That being said, this article will explore some top fraud trends that brokers should be aware of in 2023 based on the data published by SEON as well as other credible sources. We'll take a look at how these trends can affect brokers and the industry as a whole.

1. AI-based Fraudsters

AI development is getting more and more advanced these days, but while it can be really helpful in many things, it also presents a new set of risks. ChatGPT, for instance, is aimed to help users create well-written texts and letters, yet it can be used for targeting users for personal information and monetary gain as well.

ChatGPT was first introduced in 2020 and the current version was released on March 15, 2022. Dubbed GPT-3.5 in particular, it is a language prediction model that utilizes deep learning to understand and generate texts that are almost human-like. Since its release, it has quickly gained widespread popularity among users across various countries. Unfortunately, several reports have emerged lately suggesting that fraudsters have been misusing the platform for malicious activities.

One of the most concerning things that fraudsters do is use the AI to produce deepfake texts that can be easily mistaken for a real person in specific situations. Back in January, Frank on Fraud's Frank McKenna released an annual fraud prediction, expressing his concerns about the emergence of "shapeshifters" – a term used to describe fraudsters who can shift and change using AI-based tools to get away with their attacks.

Aside from that, AI also presents several other threats to forex brokers, such as:

• Making the automation of attacks more effective.
• Phishing activities are getting more diversified.
• The emergence of new malware generated from modified ChatGPT.
• The creation of believable identity documentation such as passports, driver's licenses, etc.
• Deepfakes are getting more convincing and potentially threaten existing security procedures like KYC and video verification.

Recently, some businesses have prepared some actions to mitigate the threats above. For example, LinkedIn is planning to remove users who use AI-generated headshots as their profile pictures after learning that more than 1000 profile pictures on their platform were made by Artificial Intelligence.

2. Low Barriers to Entry Combined with Economic Downturn

Nowadays, fraud is getting more accessible and somehow more mainstream, especially when it comes to activities that involve getting money out of the system. There are multiple factors that contributed to this phenomenon, but mostly it's caused by the combination of economic hardship and the ease of access to effective fraud-enabling tools for novice fraudsters. So far, gambling and casinos (iGaming) as well as neo banks and related fintech are the ones that are mostly affected by this threat.

To start with, the huge tech layoffs that started in 2022 have led to a high number of tech-savvy individuals becoming unemployed. According to Crunchbase, no less than 94,000 workers in US-based tech companies lost their jobs in 2023 as a result of rising inflation and the chaotic stock market. This may increase the number of frauds within the industry. Some of the potential threats are income frauds, credit washing, employment frauds, stacking, and synthetic identities.

In fact, SEON data shows that there's an increase in more sophisticated frauds compared to what's usually referred to as "beginner techniques" like fake phone numbers, custom domains, and non-existent email addresses. Instead, these fraudsters tend to use means that are less obvious like public and web proxies, emulators, and private extensions.

3. Fraudsters Taking Advantage of Low-Security Measures

While the fraudsters are getting more prepared to hide their identities and motives, forex brokers seem to be struggling to balance costs and return on investment on their risk management software.

Many clients have been complaining about the long safety procedure and identity verification, which can take at least a few business days to complete. If the company keeps requiring clients to double-check their login details, verifying their identities multiple times, and confirming their intentions, people can easily back away and this means lower revenue. Most companies wouldn't take such a risk in this dire economic situation, as customers are their sole source of income.

In the cost of satisfying their customers, brokers must face the risk of fraud. By lowering their security measures, they are practically exposing their vulnerabilities to the public. And in reality, one fraudster can cause greater harm than 100 legitimate customers can cause good. According to SEON, the average amount of money that fraudsters attempted to steal per transaction increased by 4x from September to December 2022. This shows that this threat is not to be taken lightly by any broker out there.

As for the solution, brokers need to reduce false positives and customer insult rates without sacrificing safety measures. It's important to keep track of all fraudster activities and study their every action in order to prevent similar issues from happening in the future more efficiently.

4. The Need for Cross-Sector Collaboration

For many years, forex trading has been a popular target for scams and fraudulent activities. This is why it's time for everyone taking a stance against fraud, especially businesses and professionals, to start working together to fight those attackers. This includes creating an effective prevention system as well as mitigation that involves a series of risk-related solutions with better integration instead of just one single end-to-end platform. This can also be in the form of knowledge sharing, partnerships, and master classes.

Simply put, the key is cross-sector collaboration. Everyone needs to work together and pick up the pace with the fraudsters because the amount of fraudulent activities is getting quite concerning. Fraudsters typically have their own forums to discuss matters and share experiences with each other, so it's time for the anti-fraud community to do the same.

Since businesses are competing for clients, they might refuse to share technology or intellectual property, so they can share knowledge and form partnerships instead. This is at least, a good start to acknowledge the common fraud trends within the industry and discuss potential strategies to fight them.

5. The Rising Adoption of Anti-Fraud ML

The last trend is rather a positive one towards fraud prevention. More businesses and decision-makers are predicted to invest more in machine learning (ML) modules. They will also become more likely to pay more attention to any ML output from the series of existing solutions that they already have.

SAS reported that 33% of banks also increased their adoption of machine learning in their anti-money laundering software during the pandemic. They claimed that the aim was to "improve the quality of investigations and regulatory filings."

Furthermore, since September 2022, the use of whitebox machine learning has been increasing by 30%. Meanwhile, in the same period, the use of blackbox machine learning also has been increasing by 46%. The whitebox ML basically produces new rule suggestions based on historical fraud data after at least 1000 transactions have been recorded. The blackbox ML, on the other hand, provides a separate fraud score to help with the decision-making process.

The Bottom Line

In a nutshell, we can conclude that fraudulent activities are getting more intense these days due to the popularity of AI-based software and the global economic downturn. This can affect everyone, including big entities and individuals, so it's highly important to stay updated with the latest trends in order to avoid getting trapped in fraudulent activities. Brokers need to increase their security measures and implement effective anti-fraud solutions, while retail traders should be more careful when choosing a broker and risking their money.