When organizations discuss fraud risks, the conversation often centers on external threats such as hackers, malware, and phishing. More often than not, many forget that insider threats can be just as dangerous, if not more so. 

A recent Insider Threat report supports this, revealing that about 83% of organizations reported at least one insider attack in the previous year, including financial firms. It’s easy to see why this is a growing trend. 

Employees, contractors, and other trusted insiders already have access to the information and data needed to carry out these acts; all that’s left is enough motivation to go through with it. 

Understanding how these threats work is becoming a necessity for financial institutions, and in this piece, we’ll be detailing this. We’ll also discuss strategies that organizations can use to stop the acts or protect themselves from within.

Understanding Insider Fraud in Financial Institutions 

Before you solve a problem, it’s fundamental to understand it, how it works, and what generally constitutes it. Insider fraud occurs when someone within a financial institution misuses their access to commit theft, manipulate transactions, or compromise sensitive data. Unlike external attacks, these individuals often have privileges that make detection more difficult and the potential impact far greater. 

Insider fraud threats can come in many forms, whether perpetrated by employees at different levels, contractors, or even former workers whose residual access has not been properly revoked. The scales of exposure also vary significantly: a large organization with thousands of workers naturally faces greater risks compared to a small or medium-sized entrepreneur who only has to manage a handful of staff. 

The financial services industry has been a top target of weakened internal compliance and fraud threats, and it’s not surprising considering that billions of dollars are exchanged in the industry. Despite being one of the most regulated industries, financial institutions still have one of the highest rates of internal fraud. More than 70% of them have experienced an insider threat incident in the past year, according to the Thales Group report. Some types associated with these organizations include:

• Account manipulation fraud
• Data theft 
• Loan and credit application fraud
• Wire, ACH, and instant payment misuse
• System abuse
• Social engineering-induced attacks

While many of these attacks are committed with criminal intent, some result from human error, negligence, and lack of awareness. Major common motivators behind insider attacks we’ve seen in recent times include

• Financial pressure or personal debt
• Opportunist behaviors enabled by weak internal compliance controls
• Disgruntlement or retaliation against employers
• Collusion with external fraud rings

Understanding these drivers is relevant in designing effective strategies that can be useful in overall fraud prevention.

Primary Issues Behind This Trend

When reviewing issues behind this trend, we found some primary issues spearheading the escalation. Some of them are:

• Inadequate security measures: Security measures can be lax in several ways. A typical example is when contractors, vendors, or outsourced services have privileged access to financial systems or sensitive information. When oversight of these third parties is weak, they can become deliberate sources of these attacks. There is also the case of organizations relying on outdated security systems. When these checks and balances are inadequate, it gets easier for malicious individuals to exploit and commit fraud without detection. 
• Lack of proper employee training and awareness: Verizon’s 2024/2025 data breach investigations report (DBIR) revealed that poor security awareness and user error were involved in about 60% of data breach cases within the year. Not all insider threats are malicious; many of them stem from a lack of proper security training and awareness among employees.
• Cultural and Organizational Bling Spots: A culture of blind trust without verification can cause more harm than good. Long-tenured employees are often considered to be trustworthy, but as an organization, enforcement policies should exist equally across the board.
• Lack of real-time monitoring: Audits and constant reviews exist to detect these issues early enough. Organizations that do not prioritize this are at a higher risk of weak internal compliance and fraud threats.

Best Case Practices for Combating Insider Fraud Threat

The cost implications of insider threats are severe. The Insider Threat report referenced earlier shows that the cost to fully recover averaged between $100,000 and $500,000. Some respondents in this study also reported steeper costs of $1 million to $2 million. Insider attacks, like every other form, come with real consequences. Hence, organizations need to be one step ahead in their fraud mitigation strategies.

Continuous employee training and awareness

Cybersecurity and fraud awareness programs should be a priority and tailored to the financial services' current realities. The training program should also include simulations and scenario-based training that can help staff gain hands-on experience in handling suspicious activities. 

Implement stronger access controls 

Organizations need to apply least-privilege principles, granting employees and contractors only the access necessary for their roles. There is also a need to constantly review and revoke residual access for former employees or those changing roles

Regular audits and risk assessments 

Financial institutions need to conduct periodic audits of financial, operational, and IT systems for early scam detection. Risk assessments should also be conducted to identify vulnerable systems that are easy for malicious employees to exploit and for proper financial risk management.

Build a strong accountability culture 

It’s also important to encourage employees to report suspicious activities when they see them. Organizations are often encouraged to promote a culture of transparency and ethics that doesn't give room for insider fraud. 

Consult With a Professional Today 

Internal and external fraud threats are constant, and it’s no longer enough for financial institutions to rely solely on internal compliance and controls. Engaging a specialized fraud prevention service can provide the extra edge needed against these growing attacks. 

Rippleshot is a leading fraud prevention platform, trusted by top financial institutions nationwide. At Rippleshot, we combine AI-driven fraud mitigation and prevention, machine learning, and predictive analytics to protect organizations against fraudulent attacks. Get in touch with our team to get started today!