External Fraud in Banking: The Systemic Threat that Demands a Coordinated National Response
External fraud has become one of the greatest threats to the stability of the financial sector, customer trust, and the integrity of the economic system. In recent years, banks have witnessed a continuous, sophisticated, and diversified growth in fraud attempts, in a context where organised crime, technology, and the digitalisation of financial services have created new vulnerabilities.
Public reports show continued increases in fraud rates in 2025, with many financial institutions recording rising losses resulting from customer reimbursements linked to fraud-related incidents.
Scams, phishing, and psychological manipulation have become the most impactful typologies. Other threats such as account takeover, CEO Fraud, and Investment Fraud also remain prevalent. At a global level, authorised fraud is already viewed by some countries as a national security threat due to the financial harm it causes to individuals and businesses, and the sense of alarm and insecurity it generates.
Digital onboarding—which has emerged as a key initiative to improve customer experience and accelerate access to financial services—has also contributed to the rise of mule accounts, as remote onboarding allows for reduced scrutiny of the true intentions behind account openings. Instant Payments, designed to accelerate fund transfers within the European Union, have also become one of the main instruments used to disperse the proceeds of fraud. Fraudsters exploit the speed of fund movement to accelerate circulation and reduce the window for timely detection, thereby decreasing the likelihood of freezing or recovering funds. Even judicial authorities, despite international cooperation mechanisms, face significant limitations due to the speed at which funds are dispersed.
Europe faces more than EUR 190 billion in illicit flows associated with cross‑border networks and mule accounts. Criminal networks use digital platforms to recruit mules, open accounts remotely, and move funds quickly. Mule accounts are also available on the Dark Web, where they are sold to criminal organisations to receive the proceeds of illicit activities. It is increasingly common for a single mule account to receive funds originating from multiple types of crime.
Regulatory developments have been moving towards greater victim protection, which has translated into reimbursement obligations for consumers in cases of fraud. The UK’s Financial Services Markets Act and the European PSD3 directive (currently under development) increase the responsibilities of financial institutions, with the expectation that this will lead to more effective fraud prevention and response.
Why the Response Must Go Beyond the Banking Sector
Most of the fraud cycle occurs outside the banking system: social networks, marketplaces, messaging platforms, and telecommunications providers are now the main channels through which victims are targeted. The lack of cross border coordination creates significant vulnerabilities, allowing criminal networks to exploit different jurisdictions to hinder the rapid exchange of information that is essential for fund recovery and disruption of criminal activity.
An effective response to fraud requires:
- Coordinated blocking of suspicious phone numbers
- Sharing of fraud indicators between banks and telecoms
- Rapid removal of fraudulent profiles and advertisements on digital platforms
- Legal mechanisms enabling real‑time information sharing
- Joint public awareness campaigns
To effectively combat mule accounts, it would be crucial to establish a transnational database that enables:
- Immediate identification of accounts and account holders flagged as mules
- Preventive blocking of new banking relationships
- Detection of interbank behavioural patterns
- Faster cooperation with authorities
- Prevention of the issuance of new mobile phone numbers to individuals identified as mule recruiters or participants
The global trend is clear: only through integrated compliance ecosystems — where fraud, AML, KYC, and sanctions functions operate in a unified manner, providing a complete risk view — can financial institutions effectively combat the rise and impact of fraud. Effective fraud risk mitigation requires coordinated action across all economic sectors through joint initiatives and information sharing. Law enforcement agencies must also strengthen their capacity to act quickly, ensuring international judicial cooperation can occur within operationally relevant timeframes.
Failure to act on rising fraud levels will result in a pervasive sense of distrust among consumers, particularly towards financial institutions, with wider repercussions across the digital ecosystem.
By João Caeiro, March 2026