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Alternative Finance - Spotlight on risk management

The latest Serious Fraud Office annual report highlights a rise in fraud investigations and prosecutions which is perhaps no great surprise. But what does it mean for alternative finance and are there specific areas the sector should keeping an eye on?

Fraud is a difficult area to address. It can be tricky to get confirmation of first-hand experience, and many things that look fraudulent may be entirely innocent. One of the main challenges is also that no one tends to call out ‘fraud’ unless they can prove it for fear of libel.

With a relatively new and booming industry such as alternative finance, opportunists looking to exploit any weaknesses are inevitable. It will take some time before fraudulent activity starts to reveal itself. Some businesses will be caught unaware, because they will grow without issue, then all of a sudden will come up against an unprecedented attack.

With this in mind, it makes sense that the presence of a proactive risk team should be fundamental for all financial services providers, but especially those in this space. It’s also a key function which investors in asset based finance should look out for on the platforms they use.

Equally important is for providers to investigate all of the transactions in operation on their platforms including site visits, invoice verification and checking that the information given is genuine, as opposed to only relying on credit agencies. This approach provides a safer financial environment and an improvement in performance.

In the invoice trading market this equates to funders being safe and confident their money will be returned, which also lowers pricing. Funders make a genuine return and sellers access cash at a lower rate because the risk of fraud isn’t a factor. It’s a win-win for everyone.


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