On 8 February 2024, the Financial Conduct Authority (FCA) published an update on its progress in tackling financial crime, which identifies four areas of focus for the coming year.
The paper firstly summarises the FCA’s impact in the year 2022-2023, on fraud, money laundering and sanctions, as well as its coordination with firms. As regards fraud, the update references the FCA’s three-year strategy (announced in 2022). It outlines its use of the regulatory toolkit and different initiatives. The strategy also recognised investment fraud and authorised push payments (APP) as particular priorities, due to their presenting lifetime risks to consumers. In terms of impact, between 2022 and 2023, the rate of growth of investment fraud slowed significantly, with overall losses down 40%. This downward trend was supported by the latest Crime Survey for England and Wales figures, where the FCA’s work with regulated firms and online platforms were emphasised as a driver.
The FCA notes that it has continued to invest in fraud prevention strategies. Some of its notable work includes:
- Issuing 2,286 warnings about possible scams in 2023 (an increase of 21% from 1,882 in 2022).
- Working alongside the Advertising Standards Agency to provide social media influencers with clear information about illegal financial promotions, through the Financial Promotions Guidance for Social Media.
- In October 2023, the FCA jointly hosted a 3 day multi-agency TechSprint with law enforcement partners, aimed at fostering more effective collaboration and data sharing to combat investment fraud.
- Since April 2022, the FCA has run six ScamSmart campaigns covering investment fraud, loan fee fraud and pension scams.
- The FCA is working with the Payment Systems Regulator (PSR) to support the mandatory reimbursement of APP fraud, which is expected to come into effect in 2024.
- It is also working with HM Treasury and the PSR on the legislative and regulatory change necessary to enable firms to slow payments where they suspect fraud.
In parallel with prevention, the FCA is also focusing on enforcement and has invested more in its capacity to deal with the harm caused by those operating outside its regulatory perimeter. Since April 2023, the FCA has charged fifteen individuals with fraud offences, with more to be charged “imminently”.
Money laundering and sanctions
Progress highlighted by the FCA includes:
- Developing and rolling out a synthetic data sanctions testing tool which has allowed for the testing of over 90 firms.
- Maintaining a robust and proportionate approach to authorisation. Firms that do not have sufficient anti-money laundering controls, designed to ensure confidence in the financial system, can expect their Annex I registration applications to be refused.
- The FCA has conducted and published multi-firm reviews, including on money laundering controls related to cash through the post office, to share its expectations of how firms should ensure their controls are proportionate to the risk.
Working with firms
The FCA also highlights its regular engagement with the private sector through their associations, through public-private structures such as the Joint Money Laundering Intelligence Taskforce, and directly.
Efforts have included:
- Publishing the FCA’s findings from reviews to give the industry feedback to help firms improve their controls.
- A TechSprint focused on tackling APP fraud held in September 2022, and a follow up event in September 2023 together with City of London Corporation and Smart Data Foundry, to launch the APP fraud synthetic dataset, to better understand how data can be shared to tackle fraud.
- Targeted engagement with payments firms through a Dear CEO letter in March 2023 and a webinar with 1,200 attendees in July 2023.
- Co-leading the work on establishing an approach to public and private prioritisation, and strengthening the role of NECC as the system leader.
The FCA’s four areas to focus on
The FCA has identified four areas which it believes can help bolster efforts to reduce and prevent financial crime: data and technology, collaboration, consumer awareness, and metrics (measuring efficiency).
Data and technology
The FCA reminds firms that they must:
- Ensure systems and controls keep up with the increasing sophistication of criminal groups.
- Calibrate how they use technology to their individual requirements to be as effective as possible.
- Keep fine tuning their response to address the evolving nature of the threat.
The FCA also published its Feedback Statement on the Synthetic Data Call for Input which was an evidence based report on how firms are using data and analytics tools, with 48% of respondents using synthetic data primarily to detect financial crime.
The FCA has highlighted the role for other sectors to play, as sharing data and intelligence is central to tackling financial crime. As such, the FCA says it is continuing to strengthen relationships with jurisdictions where supervisory cooperation is needed to address cross-border financial crime risks, and aims to help achieve a global financial system with an effective and aligned set of international standards and policies to help combat financial crime.
Firms and cross sector partners are “strongly encouraged” to participate in data sharing initiatives and explore the latest advances in data sharing technology to improve collaboration, with the aim of giving a more informed view of economic crime threats.
The FCA notes the importance of raising consumer awareness to help combat financial crime. It highlights its ScamSmart campaign, which aims to raise awareness of investment, pension and loan scams and drive consumers to the Warning List where they can check whether a firm is regulated. Other initiatives include “Stop Scams” and “Take Five”, which are other campaigns to raise awareness of fraud.
However, the FCA warns that APP fraud remains prevalent, and welcomes the Government’s Fraud Strategy to launch a simple cross government campaign to streamline and amplify anti fraud communications.
Metrics – measuring effectiveness
The FCA notes that measuring the effectiveness of fraud and money laundering prevention will allow firms to be clear on the impact their interventions are having. It welcomes the PSR’s publication of APP fraud performance data which it says ensures greater transparency and should encourage firms to continue to seek outcome-based, measurable solutions to the threat.
Furthermore the FCA highlights its outcomes and metrics framework to measure the effectiveness of its financial crime work. The framework uses a mix of market metrics, survey data and internal measures to track progress against its strategic aims and help decide where the FCA should allocate resources.
The FCA’s recent multi-firm work has revealed that firms could do more to prevent fraud. With the PSR’s new mandatory reimbursement requirement entering into force in 2024, it notes that financial services firms have a greater incentive than ever to tackle fraud.
A key focus for the FCA in 2024 will be its work to support Government proposals to reform the anti-money laundering supervisory regime, on the basis that the complexity of the current framework hinders consistency and effective coordination. The FCA also notes that it considers the option of a Single Professional Supervisor offers the best opportunity to deliver on the aims of that reform.