New data from Lloyds shows that the average loss to impersonation scams has risen 10% over the past year to £3,516, with criminals posing as banks, the police, HMRC and broadband providers to convince people to share personal and financial details for criminal gain. 

HMRC impersonation alone has cost victims an average of £2,288 across the last year, and one 85-year-old woman lost £188,000 to someone she believed was an undercover police officer.

While the volume of fraud is reportedly down, the value of takings has increased significantly.

In response, an anti-money laundering (AML) expert is warning that the verification infrastructure needs modernising to keep up with new fraud techniques.

Phil Cotter, chief executive of digital compliance firm SmartSearch says: “Fraud is becoming more emotionally sophisticated and more personalised, designed to exploit the layer of trust that verifies who someone is and who they are acting for. 

“Impersonation scams, romance scams and investment scams all work through exploiting weak or inconsistent checks within the heart of regulated activities, and an individual can end up funding illicit activity through a regulated entity like HMRC or a bank without knowing who sits on the other side of the screen, with little means of recovering their money.

“The money lost to scams is not only a loss for the people caught by them, it’s a signal that the verification infrastructure that the regulated economy relies on is falling behind the scale and pace of modern fraud. 

“With many firms now liable for criminal prosecution when they fail to prevent it, that gap is a legal exposure as much as a reputational and financial one.”

He says that his research found that a quarter of UK regulated firms list the abuse of digital identity and certified ID processes as their greatest challenge today, and nine in ten recognise emerging technologies like AI as a high risk to their own compliance programmes. 

With major AI companies having already disclosed that their models can infiltrate digital defences with limited direction, this capability in the hands of criminals rather than researchers could let money move faster than compliance programmes were ever designed to detect.

Cotter adds that verification is the last control acting before a victim’s money moves, so checking before customers begin a transaction is vital. 

He concludes: “The technology to do this already exists, and providers can complete a full identity and AML check in under two seconds for individuals, and cross-reference multiple global databases to generate a comprehensive business check in under two minutes, with AI flagging unusual patterns of activity in real time before they escalate. 

“Firms that invest in robust verification and ongoing monitoring will be best placed to protect their clients from becoming victims of financial crime, provided their processes follow the money rather than stopping at the first person presenting it to them.”