RETAIL BROKERAGE INTERNET FRAUD POSES GREATER RISK TO A FIRM'S REPUTATION THAN TO ITS CUSTOMERS

At no time in history has the financial services community had to deal with the issue of fraud the way it must today. However, the hype around identity theft appears to have masked the real risk of online fraud committed against retail brokerage accounts - which is primarily to the reputation of a firm, if it becomes associated with Internet fraud.

True instances of fraud against and, more importantly, within the retail brokerage industry are minimal, and the monetary risk small relative to the actual number of cases. TowerGroup estimates that fewer than 5,000 instances of Internet fraud were committed against financial services institutions and their client accounts where actual financial losses occurred, and of these, fewer than 500 involved a broker-dealer. Still, in today's competitive market,
TowerGroup believes that a brokerage firm cannot afford the lost revenue, potential brand damage and regulatory exposure that occurs when one of its
clients becomes a victim of online fraud.

TowerGroup believes that brokerage institutions are currently taking the appropriate measures to address the current fraud situation, continually spending more to prevent fraud than they may ever lose. Yet over time, as online commerce becomes even more mainstream, consumers will ultimately need to
bear and acknowledge the responsibility of better protecting themselves.

A new TowerGroup report titled, "Internet Fraud in Retail Brokerage: What Is the Real Risk?," by Matt Bienfang, a senior analyst in the Retail Brokerage &
Investing research service, examines the issue of Internet fraud and the exposure it represents to the retail brokerage community. The research quantifies both the real and implied risks of Internet fraud and looks at the reaction of broker-dealers addressing the issue.

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