Good morning. My name is Jay Stark. I represent RBC in my former capacity as vice-president of fraud management, a position which I held for 11 years.
RBC is committed to providing our clients with secure financial services. We've a proud history of innovation and excellence in fraud management. Thank you for inviting RBC to address the committee today. We applaud both the committee and the government on this identity theft study.
Identify theft is a serious crime leading to substantial financial losses, significant inconvenience and loss of sense of security to consumers, funding further criminal activity, concealment of criminal identities, and it may assist terrorist activities.
You've heard from my colleagues and past witnesses. The definition of ID theft differs among industry participants, as does the understanding of fraud; however, we can all agree that ID theft is an important subset of financial crime. Previous research and testimony has undoubtedly shown that identity theft is a complex topic. Similar to the differing opinions on definition and quantum, there is no shortage of opinions and vendor solutions to address the issue. A timely, effective, and efficient response requires the application of a variety of fraud strategies against a proven framework. This is an area in which I believe my colleagues at the table and I can best assist the committee.
A successful framework must optimize relationships among what I call the four fraud management pillars. The first is consumer impact or inconvenience. The second is fraud losses. The third is cost, both to the banks and to society. The fourth is risk management.
The framework called the fraud value chain must balance the following key fraud management strategies: intelligence, for example, using negative data, linking criminal events, and sharing trends and best practices; prevention—consumer awareness and education, and chip and PIN are good examples; detection—sophisticated analytics and industry partnerships; investigation, including prosecution and asset recovery; and regression or root cause analysis.
Each of these fraud strategies has decreasing marginal returns. For example, it is practically impossible to prosecute all participants in a large organized debit scheme, nor would it be practical to prevent fraud by reducing withdrawal limits to $10 or freezing credit bureaus, for example, to disincent criminal activity. Further, strategies lead to fraud migration. For example, the implementation of chips and PINs led to substantial increases in cross-border and card-not-present fraud.
The most powerful fraud strategies in the past decade have been industry initiatives, and more importantly, advancements in detection analytics, including both the sophistication of analytics and the application of enhanced data in quality and breadth. Combined with elements of other available strategies, detection analytics allowed differentiated outcomes and optimized the overall fraud management program.
The framework and the strategies have been very successfully applied to a wide range of fraud schemes, including debit and credit card lending and cheque fraud. In fact, despite a growing portfolio and the increased sophistication of criminal activity, RBC enjoyed the lowest fraud loss experience in over a decade in absolute terms last year. At RBC we spend significant time and resources in reviewing, testing, and enhancing our strategies to address financial crime, including identity theft.
Unfortunately, my time is limited. We would be pleased to work with the committee and to provide any additional assistance as you continue to study this important issue. I look forward to your questions and comments today and working together in the future.
Thank you for the opportunity to present.