Financial Conduct Authority’s (FCA) update on its three-year strategy to reduce and prevent financial crime in the UK

Financial crime, including fraud, money laundering, sanctions evasion and terrorist financing, does enormous damage to society, undermining consumer confidence and market integrity. Tackling financial crime requires a collective effort from the FCA, regulated firms, Government, law enforcement and regulated partners. 

On 6 April 2022 the FCA published its three-year strategy plan¹. In recognition that fraud was a rapidly growing and complex issue, the FCA set targets within its three-year strategy plan that aimed to reduce growth in fraud as a priority, with its ultimate ambitious aim to reduce fraud all together. The FCA said it was committed to help reduce the levels of financial crime across the board by 2025. 

Having passed the mid-way point, on 8 February 2024 the FCA published its update into the progress made into its three-year strategy². The impact on tackling financial crime has been positive. In 2023 the rate of growth of investment fraud slowed significantly. In 2022 the number of victims grew by 28% and the amount of losses by 53%. However, by the end of 2023 this had reduced significantly, with overall losses down 40% with the number of investment fraud victims growing only slightly by 4.3%.

Prevention 

Prevention is one of the biggest levers available in the fight against fraud. The FCA continues to invest in fraud prevention initiatives and the works here includes the following:

• the FCA has engaged with social media influencers and their agents to give clear information about what constitutes an illegal financial promotion.
• the FCA issued 2,286 warnings about possible scams in 2023 (an increase of 21% from 2022) and alerted consumers of firms and individuals on the FCA Warning List of unauthorised firms | FCA
• the FCA has persuaded platforms such as Google, Bing and Meta to tackle illegal financial promotions and scam adverts
• it has hosted the TechSprint event in collaboration with the National Crime Agency, the first of its kind, helping to foster collaboration and data sharing to combat investment fraud.
• it has run ScamSmart campaigns. In 2022 the FCA’s ScamSmart campaigns guided 11% more consumers to the FCA’s Warning List than in 2021
• the FCA has conducted and published multi-firm reviews on how firms mitigate the risks of fraud including on money mules³, anti-fraud controls and complaint handling so that we can share best practice across industry
• the FCA is working with Payment Systems Regulator (“PSR”) to support the mandatory reimbursement of APP fraud⁴, which is expected to come into effect in 2024
• the FCA is working with both the Treasury and PSR on legislative and regulatory change necessary to enable firms to slow payments where they suspect fraud

Enforcement

The FCA has taken robust action with firms and individuals who dishonestly abuse their regulated status. Since April 2023 the FCA has charged 15 individuals with fraud offences, with more to be charged imminently.

Money Laundering and Sanctions

The FCA’s focus on money laundering and sanctions involves ensuring that new firms have adequate financial crime controls in place to undertake their intended business plans, whilst also continuing to review regulated firms and removing authorisation where the firms fall short of meeting the FCA’s expectations. Other highlights include:

• 40% of Annex I applications⁵ and 88% of Crypto registrations were rejected, withdrawn or refused
• multi-firm reviews have been conducted and the results have been published to share the FCA’s expectations from regulated firms
• developing and testing a new Synthetic Data Sections Test tool, which allowed the FCA to test over 90 firms, with the results published
• improving the 25 Professional Body Supervisors for anti-money laundering in the legal and accountancy sectors

The future

Whilst the use of technology is helping with tackling fraud and money-laundering detection, cyber fraud, cyber-attacks and identity fraud are increasing in scale, and are incredibly sophisticated particularly through the use of AI.

The FCA continues to encourage both the private and the public sectors to join efforts in the fight against financial crime. The FCA recognises that whilst the financial services industry must continue to lead the way, social media platforms and tech companies should be equally involved.

In building on its three-year strategy, the FCA identified four main areas of focus which could have a meaningful impact on significantly reducing and preventing financial crime. These are: 

• data and technology – recognising that fast improving technology and AI is being used to target consumers and circumvent the traditional banking controls, the FCA warns firms to ensure that their systems are appraised to fast developing technologies. As a firm you should be continually asking yourself whether your firm knows how criminals are likely to be using technology to target customers and businesses and should be continually ensuring you keep up to date on new techniques or typologies
• collaboration – the FCA urges all sectors, not just the financial sector, to get involved in the fight to reduce and prevent financial crime. The Economic Crime Plan 2 is envisaged to cover a plan for strengthening the financial crime defences for both public and private sectors. The introduction of the Synthetic Data Expert Group which brings together 21 experts across financial services, the public sector, data and technology vendors, and consumer groups, will continue to run for at least 18 months
  
  Pay UK and UK Finance’s work on the new Enhanced Fraud Data System should see an increase in intelligence sharing between payment service providers once the system is implemented in 2024
  
  the general theme is that intelligence sharing across all industries is key to supporting fraud prevention and consumer protection
  
  
• consumer awareness - the FCA has been focused on raising consumer awareness and will continue to do so. The report shows that the industry has been collectively able to stop 61.5p in every £1 of attempted unauthorised fraud from occurring. Whilst the first half of the year has seen 22% increase in APP fraud, the FCA continues to raise awareness through its campaigns, ScamSmart and InvestSmart
• measuring effectiveness – the FCA welcomes transparency and encourages firms to seek “outcome-based” solutions to threats. The FCA hopes that the introduction of the APP reimbursement scheme will incentivise firms to implement new tools to reduce the volume of APP fraud. The FCA is committed to recording the effectiveness of its financial crime work in the outcomes and metrics framework

Conclusions

Good effort has been made so far in tackling financial crime, but the FCA is keen to see more progress in this area. This was highlighted in the article by Mark Francis, Director, Wholesale and Unauthorised Business Investigations, and co-sponsor of the FCA’s Financial Crime Public Commitment on 9 February 2024⁶. Mark Francis agrees that there is a big mountain to climb when it comes to tackling financial crime, and whilst initiatives implemented to date have made a difference, more progress will be made through firms working together.   

Making better use of technology in preventing fraud, staying ahead of fraud trends and continually asking questions of the business as to what it knows and how it is preventing fraud is key to the protecting consumers and businesses against the evolution of sophisticated AI fraud. 

Firms should take steps to work collaboratively and share information with each other. In this respect, firms should be keeping good records and data points to pick out any trends which can be shared more widely. 

The FCA expects firms to find the new APP mandatory reimbursement scheme as an incentive to find better and more effective ways of combating APP fraud. 

The FCA’s update comes amidst other recent developments, emphasising the expectation on firms to assist in the prevention and reduction of financial crime, including the introduction of the Economic Crime Levy in April 2023⁷, the passing of the Economic Crime and Corporate Transparency Act in October 2023, which includes the new Failure to Prevent Fraud Offence⁸ and the significant sanctions developments as a result of Russia’s invasion of Ukraine⁹.

Footnotes

1. See our article on the FCA’s Business Plan 2022/23 and Strategy 2022/25
   
2. Read the full publication here: Reducing and preventing financial crime | FCA
3. See our article on Money Mules: Post | Feed | LinkedIn
4. See our article on UK’s Payment Systems Regulator’s rules for Mandatory Reimbursement
5. Firms offering certain services that are registered with the FCA for anti-money laundering purposes only.
6. See Mark Francis’ article: FCA article
7. See our article on the Levy: Economic Crime Levy article
8. See our article on the new offence: Failure to prevent fraud offence
9. See our article: Sanctions Updates