London Daily

Focus on the big picture.
Saturday, Sep 13, 2025

Synthetic identity fraud worrying U.S. regulators

Synthetic identity fraud worrying U.S. regulators

Synthetic identity fraud, one of the fastest-growing financial crimes in the United States, has become an increasing concern for regulators, as banks struggle to find common ways of tackling the innovative theft technique that combines real and fictitious data about individuals.

Estimates over the scale of the fraud vary, but nearly all show the problem growing. One widely reported analysis by Auriemma Group, an information and advisory firm for the payments and lending industries, suggested that synthetic identity fraud cost U.S. lenders $6 billion. Meanwhile, the consultancy McKinsey estimates the financial theft accounts for 10–15% of charge offs in a typical unsecured lending portfolio.

“When we look at the market, roughly 20% of credit losses stem from synthetic identity fraud,” said Johnny Ayers, CEO of Socure, a firm specializing in digital identity verification technology.

“Synthetic identity fraud opens up the door to bad actors in areas such as money laundering and human trafficking,” Ayers said. “One of the biggest challenges for banks is that there is traditionally not a victim.”

The growing theft has recently turned up in the U.S. government’s Paycheck Protection Program (PPP). According to a report from the SentiLink, a fraud-prevention tech firm, individuals have been creating synthetic identities to obtain loans from the program designed to help those struggling under the weight of the pandemic.

U.S. bank regulators, in particular the Federal Reserve, are increasingly focused on synthetic theft and have been working with banks and technology firms to help identify solutions and common definitions.

“Synthetic identity fraud is not a problem that any one organization or industry can tackle independently, given its far-reaching effects on the U.S. financial system,” said Jim Cunha, senior vice president at the Federal Reserve Bank of Boston, in a recent study.

Unlike other types of fraud


A synthetic identity is created by using a combination of real information, such as a legitimate Social Security number, and fictitious information, which can include a false name, address, or date of birth.

Synthetic identities can be used to establish accounts that behave like legitimate accounts and may not be flagged as suspicious using conventional fraud detection models. “This affords perpetrators the time to cultivate these identities, build positive credit histories, and increase their borrowing or spending power before ‘busting out’ – the process of maxing out a line of credit with no intention to repay,” according to the Boston Fed’s analysis.

There are two significant problems with synthetic fraud for the banking industry: one is detection, the other classification.

The fraudster can leverage legitimate processes, such as “piggybacking” – adding a synthetic identity as an authorized user on an account belonging to another individual with good credit. In many cases, the synthetic identity acquires the primary user’s established credit history, rapidly building a positive credit score. Fraudsters also can piggyback new identities onto accounts owned by established synthetic identities, or “sleepers,” within a portfolio.

According to experts, all of these methods are difficult for banks to detect given existing fraud prevention systems.

An ID Analytics study found that only half of synthetic fraudsters apply for credit using digital channels, indicating a significant number can pass Know Your Customer (KYC) tests even when appearing in person.

“Traditional fraud models are not designed to detect synthetic identities,” said the Boston Fed, citing research that showed such models were ineffective at catching 85% to 95% of likely synthetic identities.

Apart from the detection challenge, one of the biggest hurdles is how banks classify this type of fraud on their books, which varies and makes getting one’s hands around the problem more difficult.

“Part of the challenge is agreeing on a consistent definition of what synthetic identity fraud is,” said Ayers of Socure. Some banks categorize such fraud as credit losses, while others mark it as third-party fraud, he said.

“When there is not a consistent definition, you can’t figure out what the magnitude of the problem is,” Ayers added. “When there is not a consistent definition, then each of the individual banks are writing their own rules.”

Greater industry collaboration needed as no single solution


To tackle these problems, regulators say there needs to be greater collaboration between themselves, banks, and technology solution providers. Since the dimensions of the fraud are complex, with the criminals a step ahead of banks and their defenses, information sharing is critical.

Newsletter

Related Articles

0:00
0:00
Close
French Debt Downgrade Piles Pressure on Macron’s New Prime Minister
US and UK Near Tech, Nuclear and Whisky Deals Ahead of Trump Trip
One in Three Europeans Now Uses TikTok, According to the Chinese Tech Giant
Could AI Nursing Robots Help Healthcare Staffing Shortages?
NATO Deploys ‘Eastern Sentry’ After Russian Drones Violate Polish Airspace
Anesthesiologist Left Operation Mid-Surgery to Have Sex with Nurse
Tens of Thousands of Young Chinese Get Up Every Morning and Go to Work Where They Do Nothing
The New Life of Novak Djokovic
The German Owner of Politico Mathias Döpfner Eyes Further U.S. Media Expansion After Axel Springer Restructuring
Suspect Arrested: Utah Man in Custody for Charlie Kirk’s Fatal Shooting
In a politically motivated trial: Bolsonaro Sentenced to 27 Years for Plotting Coup After 2022 Defeat
German police raid AfD lawmaker’s offices in inquiry over Chinese payments
Turkish authorities seize leading broadcaster amid fraud and tax investigation
Volkswagen launches aggressive strategy to fend off Chinese challenge in Europe’s EV market
ChatGPT CEO signals policy to alert authorities over suicidal youth after teen’s death
The British legal mafia hit back: Banksy mural of judge beating protester is scrubbed from London court
Surpassing Musk: Larry Ellison becomes the richest man in the world
Embarrassment for Starmer: He fired the ambassador photographed on Epstein’s 'pedophile island'
Manhunt after 'skilled sniper' shot Charlie Kirk. Footage: Suspect running on rooftop during panic
Effective Protest Results: Nepal’s Prime Minister Resigns as Youth-Led Unrest Shakes the Nation
Qatari prime minister says Netanyahu ‘killed any hope’ for Israeli hostages
King Charles and Prince Harry Share First In-Person Moment in 19 Months
Starmer Establishes Economic ‘Budget Board’ to Centralise Policy and Rebuild Business Trust
France Erupts in Mass ‘Block Everything’ Protests on New PM’s First Day
Poland Shoots Down Russian Drones in Airspace Violation During Ukraine Attack
Brazilian police say ex-President Bolsonaro had planned to flee to Argentina seeking asylum
Trinidad Leader Applauds U.S. Naval Strike and Advocates Forceful Action Against Traffickers
Kim Jong Un Oversees Final Test of New High-Thrust Solid-Fuel Rocket Engine
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Macron Appoints Sébastien Lecornu as Prime Minister Amid Budget Crisis and Political Turmoil
Supreme Court temporarily allows Trump to pause billions in foreign aid
Charlie Sheen says his father, Martin Sheen, turned him in to the police: 'The greatest betrayal possible'
Vatican hosts first Catholic LGBTQ pilgrimage
Apple Unveils iPhone 17 Series, iPhone Air, Apple Watch 11 and More at 'Awe Dropping' Event
Pig Heads Left Outside Multiple Paris Mosques in Outrage-Inducing Acts
Nvidia’s ‘Wow’ Factor Is Fading. The AI chip giant used to beat Wall Street expectations for earnings by a substantial margin. That trajectory is coming down to earth.
France joins Eurozone’s ‘periphery’ as turmoil deepens, say investors
On the Anniversary of Queen Elizabeth’s Death: Prince Harry Returns to Britain
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Murdoch Family Finalises $3.3 Billion Succession Pact, Ensuring Eldest Son’s Leadership
Big Oil Slashes Jobs and Investments Amid Prolonged Low Crude Prices
Court Staff Cover Up Banksy Image of Judge Beating a Protester
Social Media Access Curtailed in Turkey After CHP Calls for Rallies Following Police Blockade of Istanbul Headquarters
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
Elon Musk Poised to Become First Trillionaire Under Ambitious Tesla Pay Plan
France, at an Impasse, Heads Toward Another Government Collapse
Burning the Minister’s House Helped Protesters to Win Justice: Prabowo Fires Finance Minister in Wake of Indonesia Protests
Brazil Braces for Fallout from Bolsonaro Trial by corrupted judge
The Country That Got Too Rich? Public Spending Dominates Norway Election
Nearly 40 Years Later: Nike Changes the Legendary Slogan Just Do It
×