Safeguarding Law Firms Against APP Fraud

Uploaded on 2024-04-08 in FREE TO VIEW, BUSINESS-Services-Law, BUSINESS-Services-Financial

As technology evolves, so do the tactics of cybercriminals. Due to the high-value transactions law firms handle, Authorised Push Payment (APP) fraud is becoming one of the most significant threats to the UK’s legal sector.

According to the Payment Systems Regulator (PSR), APP accounted for 40% of fraud losses in 2022, amounting to £485 million. This figure underscores the magnitude of the challenge facing law firms, highlighting the urgent need to reinforce their processes and systems against the growing threat.

Moreover, as law firms adapt to technological advancements in their operations, they inadvertently heighten their susceptibility to targeted cyberattacks, reflecting the evolving landscape where modern criminals exploit technological advancements for financial gain.

Mitigating Risk With The Latest Technology

A crucial defence mechanism for banks and non-bank payment service providers against APP fraud is the use of Confirmation of Payee (CoP). CoP serves as a verification tool that enables firms to authenticate payee details before processing transactions.

Implementing CoP protocols can reduce the risk of falling victim to fraudulent payment requests, paying to an incorrect payee, safeguarding client assets and reinforcing trust.

Artificial Intelligence (AI) is also increasingly being utilised by firms to strengthen their fraud controls. By noticing suspicious transactions before they escalate into fraudulent payments, AI-powered fraud tools are helping law firms minimise the impact of these attacks.

Moreover, securing communication channels not only prevents unauthorised access to sensitive information but also ensures the integrity of client communications. By implementing these protocols, law firms can create fortified digital pathways through which sensitive data flows securely. This proactive approach not only safeguards against malicious actors, but also helps to strengthen relationships with clients to build trust. 

Empowering Staff & Clients 

Combatting APP fraud requires a collective effort from all stakeholders. Law firms can start by prioritising education initiatives that equip staff and clients with the knowledge to spot scams like CEO fraud, impersonation, and invoice scams, amongst others. so they are not tricked into sending money to a fraudster posing as the genuine payee. 

Alongside this, law firms can empower their people by providing access to user-friendly resources that arm them with accessible and intuitive tools. By fostering a culture of vigilance and awareness, firms can fortify their defence mechanisms and mitigate the risk of financial loss and reputational damage.

Implementing A Robust Strategy

A programme of ongoing risk assessments plays a pivotal role in identifying vulnerabilities within internal procedures , controls and systems. By conducting these assessments, law firms can proactively address weaknesses and strengthen their defences against emerging threats. 

In addition, partnering with tech-enabled solution providers can give law firms a head start when navigating the cybersecurity challenges. Focusing on payment fraud for legal services, embedding a third-party managed account (TPMA) solution to either completely or partially outsource a client account function can greatly mitigate some of these risks. 

To confront the threat of APP fraud, law firms must embrace a dynamic strategy that combines internal and client education, implementation of effective fraud controls and the use of third-party technology partners.

By strengthening defences through firms empowering their teams through education, building a culture of vigilance and use of third-party solutions to have an effective fraud control framework, law firms can be confident in their ability to safeguard their operations and uphold the security of their clients' assets. This proactive stance ensures resilience in the face of any threat.   

Scott Newby is Director of Compliance & MLRO at Shieldpay

Image: Ideogram

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