The South African Reserve Bank (SARB) has sounded the alarm on cybercrime and emerging technologies as growing threats to the South African banking industry.

A recent central bank study shows that a number of threats are increasing vulnerabilities in the banking sector, including internet and mobile banking platforms, which the SARB says could be exploited to facilitate money laundering and finance the terrorism.

The new SARB report ranks internet and mobile banking platforms among the digital threats that pose an international reputational risk.

The central bank assessed 34 banks on the risk of money laundering, terrorist financing and proliferation financing in the banking sector.

South Africa has 34 licensed depository entities. These are five large banks, nine small and medium locally controlled banks, 17 branches of foreign banks and foreign controlled banks, and three mutual banks.

The report notes that more than 90% of the banking sector offers online banking (internet banking) mobile banking applications (using technology applications), with the exception of one mutual bank.

According to the SARB, notwithstanding the fact that online and mobile banking services offer faster transactions, the platforms also attract criminals.

“These platforms increase vulnerabilities to money laundering and terrorist financing, as banks run the risk of not being able to reliably identify and verify customers through remote onboarding processes. or digital,” the report read.

“While online banking offers faster transactions and more convenient banking options, these features are also attractive to criminals. Online features can obscure the true identity of customers (which branch visits would have detected), and these features can also obscure the true destination and recipients of funds. »

The SARB reports that most customers onboarded through digital channels (77.5%) were banked by large banks. Next come banks under local control (22.3%) and foreign branches (0.03%). Only one of the three mutual banks has onboarded its customers digitally.

Online Criminal Assault

Cybercrime and emerging technologies also pose risks, the SARB notes in its report, adding that they can be used to commit crimes against banks.

In the last 24 months, according to the SARB, in locally controlled banks, 1,237 cybercrime incidents and online fraud attempts have been recorded.

The SARB says these attempts resulted in an average of 137 incidents per bank, while three of the nine banks suffered no attack.

Over the past two years, major banks have suffered net losses of R322.1 million due to cybercrime or online fraud attacks. Locally controlled banks lost around R159.1 million, of which R7.9 million was due to staff collusion.

The report states: “Cybercrime is on the rise in South Africa, with ransomware payments being demanded by cybercriminals. A study by Surfshark, using FBI data to develop an index, found that South Africa ranked seventh in terms of the number of victims of cybercrime.

“Cybercrime can harm someone’s security and financial health. Other forms of fraud can be facilitated using computer systems, including bank fraud, card fraud, identity theft, extortion, and theft of classified information. These types of crimes often result in the loss of private information or monetary information.

During the 24 months studied by the SARB, no attack or attempt of cybercrime and online fraud was recorded by mutual banks.

Ten banks on the list of foreign branches and foreign-controlled banks suffered no cybercrime or attempted online fraud, while three banks made one to two attempts, two banks made 56 attempts, and one bank made 664 attempts.

However, digital banks recorded fewer incidents of cybercrime or online fraud compared to the number of cybercrime and online fraud attacks or attempts of traditional banks in the last 24 months.

The SARB says ATMs are also a concern. “Some advanced ATMs accept cash deposits, which limits customer identification and the source of funds. Criminals use ATMs to place the proceeds of crime into the banking system, increasing vulnerabilities to money laundering. money and the financing of terrorism for the entire sector.

In South Africa, 35% of banks have ATMs. This includes 33% of large banks, 50% of locally controlled banks, 17% of foreign bank branches and subsidiaries, and none of mutual banks, according to the SARB.