Firms must be FCA’s ‘eyes and ears’ in fight against financial crime

Out-Law News | 20 Sep 2022 | 3:08 pm | 2 min. read

The UK’s financial services sector must help regulators spot developing financial crime threats as the cost-of-living crisis starts to bite, according to one legal expert.

Neil McInnes of Pinsent Masons said: “The importance of public-private partnerships (PPP) in combatting financial crime has been noted for some time – and extends across various jurisdictions. Firms should continue to refresh awareness training across their workforces, to test the resilience of their reporting and speak-up mechanisms and to deploy technology such as data analytics to be ahead of the game. In doing so, they can protect their customers and their businesses from emerging risks that current economic conditions may create”.

His comments came after Sarah Pritchard, an executive director at the Financial Conduct Authority (FCA) called on financial firms to help the regulator respond to the risks associated with the cost-of-living crisis. In a speech earlier this month, Pritchard said: “We are already seeing more scams such as loan fee fraud, ghost broking, and false access to rebates from utility companies, and we anticipate a potential rise in people being recruited to act as money mules too, where they are asked to transfer money through their accounts by strangers in exchange for a payment.”

She added: “The temptation for people in difficult circumstances is huge. But so are the consequences. This is money laundering – criminals trying to move cash ill-gotten from modern slavery, drugs, fraud, terrorist financing and other crimes. It can be detected and can result in prosecution and a red flag in financial records.” Pritchard asked financial services firms to consider how their customers are likely to be impacted by the crisis, and whether they are doing enough to raise awareness of crimes like APP fraud and pension scams.

She said the FCA aimed to harness the ‘force multiplier effect’, seeing professionals in firms “scanning and being alert to red flags”. She called for a “a whole system response” that sees firms interpret the “clues” from conversations and customer behaviour to “limit the threat”, as well as wider use of technology that identifies unusual patterns of activity. Pritchard also outlined FCA plans to test how financial services and other sectors can share data and analytics in real time, helping to spot fraud at its source.

“[The FCA] can reach into financial services not just to set standards and inspect adherence, but to find solutions. It is that partnership between firms, regulators and government, that holds the key. Much as I am fond of lawyers…we cannot leave crime spotting to legal, compliance or other experts. Fighting crime should never be left to one body or one team within an organisation,” Prichard added.

McInnes said: “This latest statement from the FCA is a timely reminder to the financial services sector: regulators have enhanced expectations on all those working in the industry to be the eyes and ears for the latest financial crime threats.”

Pritchard also reiterated the regulator’s stance on non-compliance. Since 2018 the FCA has fined more than 10 banks and other firms for money laundering weaknesses. The fines issued have totalled over £665m. Earlier this year, it also ordered the closure of all ‘crypto ATMs’ operating in the UK, which it ruled had been operating without regulatory permission.

David Hamilton of Pinsent Masons said: “In the past year, the FCA has investigated and sanctioned a number of authorised firms for a range of financial crime systems and controls failings, ranging from global banks to smaller trading businesses. The regulator identified key deficiencies in firms’ prevention and detection of fraud, bribery, money laundering, and sanctions breaches by customers and third parties and. crucially, the risk of such breaches. Over £90 million in financial penalties and profit disgorgements have been imposed with similar sanctions levied in previous years.”

Hamilton added: “Given the lengthy lead time of regulatory investigations, the underlying activities in such cases often take place several years prior to the issue of decision notices. The enforcement actions nevertheless demonstrate that the FCA will act where it sees issues with financial services firms’ financial crime procedures and firms would do well to heed the FCA’s latest prompt to calibrate those procedures to the rapidly changing financial crime landscape.”