Establishing trust with customers and other stakeholders sits at the core of the finance industry.

Transparency, especially surrounding the security measures of your institution, is at the foundation of building that trust. Making customers and other stakeholders feel confident in the process, procedures, and proactive approach to safeguarding their most valuable assets can make or break an institution.

Silicon Valley Bank (SVB), a $212 billion entity that went under because of a bank run, is one of the most recent examples of failure in lack of transparency regarding its solvency. Not only was internal transparency lacking between it’s board and management, but it’s customer base was left in the dark around their already uninsured deposits.

More importantly: transparency also helps to act as a deterrent to many types of fraud. In this blog we’ll be discussing the impacts of transparency in mitigating fraud and how financial institutions can have better conversations with it’s customers and stakeholders.

How Transparency Can Act as a Deterrent to Internal Fraud

Being open and transparent about your financial practices can subject you to a higher degree of scrutiny – from its customer, market, and stakeholder. While this scrutiny can be overwhelming, it can also limit the chances of internal frauds, security gaps, and vulnerabilities to remain unnoticed for long.

Good whistleblower policies and comprehensive and frequent audits also help with trust-building and reduce the chances of internal fraud. Empowering those internally to have those sometimes difficult conversations can only benefit an institution in the long run.

Strategies for Businesses to Increase Operational Transparency

Each type of institution may choose different strategies for improved operational transparency. FinTechs, for example, are predisposed to use technologies that may increase transparency, like immutable blockchains and public ledgers unlike their more traditional counterparts.

However, no matter the type, best transparency practices that almost all financial institutions can adopt include clear communication within and outside an organization and training their employees and stakeholders in the best transparency and ethical practices.

This may include:

  1. Clear Communication: Regularly publish simplified product and service descriptions, avoiding technical jargon that might be confusing to the average customer.
  2. Regular Reporting: Provide quarterly updates about the company’s financial health and ongoing initiatives, easily accessible on the company website.
  3. Open Forums and Q&A Sessions: Host monthly virtual town-hall meetings where customers can ask questions directly to senior management.
  4. Transparent Fee Structures: Display a breakdown of all fees associated with accounts or services, and ensure that there are no hidden charges.
  5. Whistleblower Policies: Implement a system for employees to report unethical or questionable practices without fear of retaliation.
  6. Stakeholder Engagement: Conduct periodic surveys to gather feedback from customers and use the insights to improve operations and address concerns.
  7. External Audits: Employ third-party firms to audit financial statements, ensuring unbiased reviews and instilling confidence in stakeholders.
  8. Open Data Initiatives: Share non-sensitive data with the public about operations, such as lending patterns, to demonstrate fairness and objectivity.
  9. Ethical Training: Regularly train employees on the importance of transparency and ethical behavior, reinforcing the institution’s commitment to these values.
  10. Transparent Supply Chain: Disclose information about third-party vendors and partners, ensuring that they also adhere to transparency standards.

Case Studies Showcasing the Benefits of a Transparent Approach

BioCatch uses dandavior datasets along with machine learning models to identify and prevent fraud attempts. While this behavior tracking raised several privacy concerns, the company was transparent about its solution to the problem.

The company has removed personally identifiable information from its behavior-tracking models. This has allowed it to establish trust with its B2B clients and, by extension, their B2C customers/clients.

OpenSea is the largest NFT marketplace that was the target of a sophisticated phishing attack in 2021. However, the company worked on its vulnerabilities and maintained its position as the largest player in this space. It even grew its position in the NFT industry, from 60% market share in 2021 to over 89%.

Balancing Transparency with Security and Privacy Concerns

It’s important to understand that transparency should never come at the cost of privacy.

Practices such as over-micromanagement in documenting every single calculation, focusing on facts instead of reason in decision-making, or unintentionally incentivizing cheating through incentive programs can all generate mistrust, malpractice, and end up costing your institution.

It’s important to wield transparency effectively and, when possible, letting existing compliance or other laws dictate your transparency strategy. Most banks adhere to the regulatory compliance requirements (pertaining to data and customer information) in all the countries they operate in.

This compliance also extends to data protection laws and frameworks like GDPR. The idea here is that banks are supposed to be transparent about their financial practices, security measures, and policies (including fraud prevention), but they shouldn’t make themselves or their customer data more vulnerable by disclosing these bits of information.

The Role of Leadership in Championing Transparency

The leadership of an organization can have a significant impact on the culture of transparency. By embodying the values of transparency, creating an open-door environment, and being transparent about the organization’s goals and company approaches (with the employees), the leaders can set the right tone. They can also develop a culture of open communication that can be extended to customers of the business.

Feedback Mechanisms and Continuous Improvement

Businesses, especially financial institutions, can improve their transparency policies and, in turn, reduce or eliminate their fraud concerns by working with various stakeholders and incorporating their feedback.

The most important source of this feedback is your customers. Understanding whether or not they’re satisfied with your approach to transparency and the changes they seek can allow you to make constant improvements without risking security, privacy, or trust.

Transparency is a crucial facet of fraud prevention, but ultimately, it’s just one layer of a comprehensive fraud prevention strategy; this is one of the many things that the Financial Fraud Consortium can support you and your institution in.

The Financial Fraud Consortium is a membership-based group of industry experts driven by a shared mission to combat financial fraud. This multifaceted threat leads to substantial financial losses and reputational risks. Our founding members have united to enhance transaction processing efficiency, implement effective countermeasures, and prioritize the customer experience. Embracing the strength of collective action, we unite to protect businesses and customers from the ever-evolving challenges of fraud.

As a member of The Financial Fraud Consortium, you gain access to a collaborative community dedicated to identifying, detecting, and preventing complex fraud. Join us and take the lead in protecting your business and customers against financial fraud. To learn more about membership and its benefits, visit us online or reach out to our membership team today!