Fighting financial crime - the cost of living crisis and the force multiplier effect
16 September 2022
16 September 2022
At last week's Financial Crime Summit, Sarah Pritchard, Executive Director, Markets, FCA, gave a speech focusing on financial crime in the present economic environment. Her observations will be of interest to regulated firms and she also issued a number of challenges to firms.
Financial crime is said to be "a bit like Covid". It mutates to evade destruction, with criminals seeking to "cash out" and carry out financial crime by changing and adapting to exploit new weaknesses in the financial system and by "constantly vary[ing] their tactics when targeting the vulnerable for fraud". Likewise, the ever-mutating threat of financial crime must be countered by many measures and groups which must constantly adapt to defeat it as it evolves.
The FCA expects financial crime to become even more prolific during the cost of living crisis. They say they are already seeing more scams, such as loan fee fraud, "ghost broking", and false access to rebates from utility companies. Ms Pritchard asks what firms are doing to calibrate their financial crime controls to the changing risks as a result of the cost of living crisis. How are firms' customers likely to be impacted, and are firms doing enough to raise customer awareness of crimes such as APP fraud, pension scams and ghost broking so that they are not easily exploited?
Ms Pritchard also noted that, as with the virus, no one is unaffected by financial crime. It must be responded to systemically, in order to limit and defeat it.
Whether working in one of the 50,000 firms regulated by the FCA in the UK or as a member of a professional body that it oversee - an effective defence is needed.
The FCA aims for the force multiplier effect: professionals in firms scanning and being alert to red flags, using human knowledge and instinct to interpret the clues from conversations and customer behaviour; technology identifying unusual patterns of activity; and information shared with regulators and law enforcement.
A whole-system response is needed to effectively limit the threat. The FCA has a unique role in this in working with government partners - the Home Office, HM Treasury, NECC and NCA - international regulators, and the industry. They can reach into financial services not just to set standards and inspect adherence, but to find solutions.
These FCA comments will be food for thought for firms, and, if they do not take on board the FCA messaging and things go wrong, the FCA may hold them to account.
Authors: Ruby Hamid, Partner, David Capps, Senior Consultant and Neil Donovan, Senior Associate