NDIC Advocates AI Integration to Combat Fraud in Nigerian Financial Institutions
The Managing Director and Chief Executive Officer of the Nigeria Deposit Insurance Corporation (NDIC), Mr. Bello Hassan, has called for the adoption of Artificial Intelligence (AI) technologies to strengthen fraud detection mechanisms in the nation’s financial sector.
Speaking at the Risk Management Roundtable organized by FITC, Mr. Hassan highlighted the limitations of traditional fraud detection methods reliant on manual verification and human analysis.
He proposed the integration of advanced AI tools like Machine Learning (ML), Natural Language Processing (NLP), and Anomaly Detection as transformative solutions to address the growing sophistication of financial fraud.
“AI can process vast amounts of data in real-time, identify unusual patterns, and detect emerging threats long before they cause significant harm,” Mr. Hassan stated.
Enhancing Fraud Detection Capabilities
Elaborating on the potential benefits of AI, he noted its capacity to identify irregular transactions, such as large withdrawals from new geographic locations, and initiate protective actions like freezing accounts or alerting stakeholders. AI’s ability to analyze extensive datasets and consider multiple factors can reduce false positives, allowing financial institutions to focus on genuine threats.
Mr. Hassan also underscored the importance of AI in tracking cross-border transactions and analyzing user behaviors, such as typing patterns and device usage, to combat identity theft and account takeovers.
Regulatory Oversight and Ethical Standards
While championing AI’s adoption, the NDIC MD emphasized the need for robust regulatory frameworks to ensure the ethical and transparent use of AI technologies.
He praised the Federal Ministry of Communications, Innovation, and Digital Economy for drafting Nigeria’s first National Artificial Intelligence Strategy (NAIS), a blueprint aimed at leveraging AI sustainably and ethically.
“Financial regulators and supervisors must ensure public trust by guaranteeing that AI technologies reinforce stability without infringing on data privacy or consumer rights,” he said.
Globally, organizations like the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS) are also advancing guidelines for AI adoption in financial services.
Addressing Fraud Spike
Mr. Hassan’s remarks come against the backdrop of rising fraud cases in the Nigerian banking sector. According to FITC’s Q3 2024 fraud and forgery report, Nigerian banks recorded a 65% increase in fraud cases, from 11,532 in Q2 to 19,007 in Q3. The amount involved surged by 105% to N115.9 billion in Q3, up from N56.6 billion in the previous quarter.
Despite the spike in reported cases, the actual losses declined significantly. Only N10.1 billion was lost to fraudsters in Q3, a 75.4% drop from the N42.8 billion recorded in Q2.
Challenges and the Path Forward
While acknowledging the transformative potential of AI, Mr. Hassan cautioned against challenges such as compliance with data protection regulations like the Nigeria Data Protection Regulation (NDPR) and safeguarding AI systems against cyber-attacks. He also stressed the need to eliminate bias in AI models to maintain fairness and public trust.
“Transparency in AI decision-making is essential. Regulators must establish frameworks to monitor AI systems and ensure they operate ethically and in line with legal standards,” he stated.
He urged stakeholders to prioritize collaboration within the financial industry to address fraud effectively and responsibly integrate AI technologies.
The roundtable concluded with a consensus on the need for synergy between regulatory bodies and financial institutions to combat the escalating fraud threat while embracing technological advancements.
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