Out-Law News | 21 Nov 2018 | 8:54 am | 3 min. read
The FCA's first ever financial crime report (16-page / 747KB PDF), based on 2017 activity by over 2,000 firms, found that firms handled 923,000 reports from their staff related to suspected money laundering, and refused to provide services to 1.15 million prospective customers for reasons related to financial crime. Firms also reported that they employ 11,500 full-time equivalent staff in financial crime-related roles, and spend a collective £650m annually on compliance-related activity by staff.
"The figures published in the FCA's analysis of firms' financial crime data makes it clear that financial crime continues to be a material concern for the financial services industry, demonstrated in particular by the number of internal suspicious reports escalated by staff and the significant sums being spent to prevent it," said contentious regulatory expert Jonathan Cavill of Pinsent Masons.
"The FCA will no doubt be comforted to some extent that firms are taking their obligations to prevent financial crime seriously. However, there continue to be investigations and enforcement by the FCA relating to financial crime indicating that, certainly in the regulator's mind, more can be done by firms to assist with protecting consumers and ensuring market integrity," he said.
The FCA introduced a new requirement in 2016 for certain financial services firms, including all UK-based banks and building societies, to provide it with intelligence on current financial crime-related threats and trends. The data published in the report is an "important step" for both the FCA and firms, as it will give them more oversight on the true extent of money laundering, terrorist financing, fraud and sanctions in the UK, according to the report.
Respondent firms had a total of 549m retail and wholesale 'customer relationships', of which 427m were in the UK and 113m were elsewhere in the European Economic Area (EEA). Of these, 1.6m were classed by firms as 'high risk' for the purposes of compliance with the Money Laundering Regulations, including 120,000 'politically exposed persons' (PEPs) and 11,000 non-EEA correspondent banking relationships.
Firms received 923,000 internal notifications of suspicious transactions, either from staff or by automated systems. Firms' money laundering reporting officers went on to report 363,000 of these cases to the National Crime Agency after further investigation. Firms also reported 2,100 cases of terrorism-related suspicious activity to the relevant authorities.
Firms refused to provide services to a total of 1.15m prospective customers for financial crime-related reasons in 2017, which the FCA said "might be because the prospective customer was thought to pose an unacceptable fraud or money laundering risk". Firms also turned away 375,000 existing customers for similar reasons. Worries about financial crime led to firms ending nearly 800 introducer relationships, including over 100 with 'appointed representatives', according to the report.
The FCA also surveyed firms on who they believed the main perpetrators of different categories of frauds are, and whether they thought customers, firms or others were the main victims of different types of fraud. Most respondents did not feel able to identify the type of perpetrator likely to be behind most kinds of fraud, although rogue customers tended to be perceived as behind the likes of application fraud, insurance fraud, mortgage fraud and loan repayment fraud. Firms tended to suspect organised criminal groups as being behind the likes of computer-enabled fraud, card fraud and identify fraud.
According to respondents, financial firms tended to be the main victims of expenses fraud, mortgage fraud and loan repayment fraud. Customers were most often identified of the victims of 'pension liberation' fraud, account takeover and debit card fraud.
Pension scams expert Ben Fairhead of Pinsent Masons said that it was not clear whether the FCA had meant for the term 'pension liberation fraud' to refer to 'classic' pension liberation scams, or pension scams more generally.
"Certainly, anecdotally, those in the pensions industry are coming across much less evidence of actual liberation, in the sense of members being lured into drawing payments from their own pension pots in breach of tax law," he said. "Instead, other types of pension scams remain rife: there are real concerns, for example, about large sums paid into what have been termed 'international SIPPs'."
"Part of the problem with dealing with pension scams is that we are constantly at risk of being a few steps behind the scammers when regulating and legislating. Surveys are useful, but the turn-around on this, and the terminology used, has possibly led to a slightly out-dated perspective on the nature of current pension scams," he said.