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Five ways commodity trading firms can mitigate COVID-19 fraud risks

Protect your business from rogue trader risk, phishing and cyber attacks

A side effect for businesses dealing with COVID-19 has been a heightened risk of fraud, both internally and externally. Organisations are seeing increased incidences of phishing and other cyber attacks as fraudsters look to exploit home working with its security limitations and distractions.

With COVID-19 disrupting established business controls and processes, and potentially leaving some areas under-staffed, established prevention and detection measures, including segregation of duties, may be rendered less effective.

This article sets out five areas commodity trading businesses should look at to mitigate these risks. All should be good practice in normal times, but they have taken on greater significance in the current situation.

5 areas to mitigate risks

Review, test and revise your fraud response plan

We know almost all businesses will have reviewed their business continuity plans, but has this included looking afresh at fraud risk and response? The fraud response plan should cover who - along with their stand-ins, in case of temporary absence - does what, such as preserving the data and evidence, contacting relevant third parties including banks, clients and regulators, and when (promptly but not in such haste as to create problems later).

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Scrutinise risk indicators and investigate exceptions promptly and thoroughly

This may seem obvious, but we know from a number of fraud cases in the sector over the years, that all too often the red flags were there, such as patterns of trade amendments, cancellations, late payments, risk limit breaches, or unusually good or bad trading performance. Analyse these thoroughly, including by desk and counterparty, to identify exceptions and ensure they are investigated, with evidence retained. In the current environment, many people’s roles and associated access rights will have changed, which could give rise to conflicts that could be exploited. 

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Keep your teams talking

We know most commercial teams have established virtual huddles throughout the day. Ensure your risk and back office teams are plugged into what’s going on commercially, so they can be alert to what to expect, but also set aside time for those teams to discuss matters in their areas. Credit risk assessments, for example, are changing more frequently and it’s imperative all teams are alert to the implications of this. We are also seeing more senior personnel attend meetings, regularly or occasionally, that they wouldn’t usually attend, to both set the tone and ensure they are close to what’s going on, given the current disruption to markets and operations. 

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Review and revise incentives

Trading frauds are often linked to incentives and pressures to meet targets. Consider whether targets remain appropriate and whether communication on jobs and salaries could reduce fraud pressures.

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Look after your people

It’s easy to feel overwhelmed by what is going on. So do look out for signs of stress and general health and wellbeing, as the points above are reliant on a diligent, calm and confident team. 

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If you would like to discuss any points raised in this blog, or are concerned about an actual or potential fraud, or would like to discuss your business response to COVID-19, please get in touch. 

Contact us

Jonathan Rose

Jonathan Rose

Director, Commodity Risk Management, PwC United Kingdom

Tel: +44 (0)7595 850848

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