In brief
- Synthetic identity fraud involves the creation of fictitious identities by combining real personal information (such as National Insurance numbers) with fabricated details (false names, addresses, dates of birth). Unlike traditional identity theft, no real person corresponds to the identity created.
- The threat is growing rapidly: synthetic identity fraud is now one of the fastest-growing financial crimes in the UK and globally, with annual losses estimated in the billions. Financial services, credit providers, and e-commerce platforms are particularly vulnerable.
- Victims include individuals whose genuine details are misused, lenders and businesses suffering direct financial losses, and the broader economy through facilitation of money laundering and other serious crimes.
- Legal remedies are available: victims and affected businesses can pursue freezing orders, asset tracing, proprietary injunctions, and Norwich Pharmacal relief, whilst lawyers play a crucial role in coordinating enforcement action and advising on prevention frameworks.
What is synthetic identity fraud?
Synthetic identity fraud involves the construction of fictitious identities by blending genuine personal information - often a real National Insurance number or date of birth - with fabricated elements such as false names, addresses, or telephone numbers. The resulting "synthetic identity" does not correspond to any real person, which distinguishes it from traditional identity theft, where a fraudster assumes the complete identity of an existing individual.
These synthetic identities are then cultivated over time. Fraudsters apply for credit, make small purchases, and build a credit history, establishing apparent legitimacy. After months or even years of "nurturing" the identity, the fraudster executes a "bust-out": resulting in the fraudster maximising credit lines before disappearing, leaving victims - primarily lenders - with substantial losses and no real person to pursue.
Scale and prevalence
Synthetic identity fraud has emerged as one of the most significant and fastest-growing threats in financial crime. In the United States, the Federal Reserve has identified it as the fastest-growing type of financial crime, accounting for an estimated 10–15% of credit losses and costing lenders approximately $6 billion annually. UK-specific data remains more limited. UK Finance and the Financial Conduct Authority have flagged synthetic identity fraud as an escalating concern, particularly as digital onboarding and remote account opening have accelerated post-pandemic.
The financial services sector bears the brunt of losses, but e-commerce platforms, telecommunications providers, and any business extending credit or processing high-value transactions face exposure.
Who is at risk and what are the harms?
Synthetic identity fraud creates multiple categories of victim:
Individuals: persons whose genuine personal details (often children, the elderly, or individuals with thin credit files) are harvested and incorporated into synthetic identities may suffer credit damage, difficulty accessing finance, and the burden of proving they are victims rather than perpetrators. Such personal data is frequently obtained through cyber-attacks on third parties.
Lenders and businesses: these entities face direct financial losses from unpaid credit and chargebacks, and fraud-related write-offs can be substantial. Reputational damage and regulatory scrutiny may follow, particularly where inadequate controls are identified.
Consumers and the economy: synthetic identities underpin wider criminal enterprises, from money laundering to fraud-as-a-service operations, eroding trust in digital commerce and increasing costs across the financial system.
Prevention and protection
Effective prevention requires a multi-layered approach:
For individuals: regularly monitor credit reports for unfamiliar accounts or enquiries; consider credit freezes or fraud alerts; safeguard personal information, particularly National Insurance numbers and identity documents.
For businesses: implement robust Know Your Customer (KYC), Anti-Money Laundering (AML) and cyber-security controls; deploy advanced identity verification technologies, including biometric authentication, document verification, and AI-driven anomaly detection; monitor account behaviour for patterns consistent with synthetic identity cultivation (e.g., rapid credit-building followed by sudden high-value applications); and share intelligence through industry fraud-prevention networks.
Legal remedies and the role of legal practitioners
When synthetic identity fraud is detected, swift legal action is essential to mitigate losses and hold perpetrators accountable. Mishcon de Reya's Fraud team advises clients on the full spectrum of remedies:
Freezing orders and asset preservation: obtaining urgent injunctive relief to freeze assets and prevent dissipation, including worldwide freezing orders where fraud spans multiple jurisdictions.
Norwich Pharmacal relief: compelling third parties (banks, telecommunications providers, online platforms) to disclose information identifying fraudsters and tracing the flow of funds.
Proprietary claims and tracing: pursuing assets through complex transaction chains, asserting proprietary interests, and recovering misappropriated funds.
Coordination with law enforcement: liaising with the National Crime Agency, Report Fraud, and international authorities to support criminal investigations and enhance prospects of recovery.
Regulatory compliance and prevention: advising financial institutions and businesses on regulatory obligations, designing and stress-testing KYC/AML frameworks, and implementing technology-driven controls to detect and prevent synthetic identity fraud before losses occur.
Synthetic identity fraud presents a sophisticated and evolving threat, but it is not insurmountable. With the right combination of vigilance, technology controls, and timely legal action, individuals and businesses can protect themselves and pursue effective remedies when fraud of this kind occurs.