A targeted and outcomes-based approach to tackling financial crime

Speaker: Sarah Pritchard, executive director, markets and executive director, international
Event: The Financial Crime Summit, London
Delivered: 05/09/2024
Note: This is a drafted speech and may differ from the delivered version

Highlights

• Fighting financial crime is a priority for the FCA and a key commitment in our 3-year strategy. 
• Consistent with the national economic crime plan and fraud strategy, our work is based on a partnership approach.  
• Financial crime is not just an issue for the financial sector, but for other sectors too, sharing data and intelligence is a vital tool in staying one step ahead.  

Picture the scene.

London, 1666: a labyrinth of narrow streets, lined with wonky wooden buildings hunched tightly together.

On a balmy evening in early September, a small flame ignites in a local bakery.

As first, it seems like a minor incident. No big deal. Just a small fire that can be pretty easily managed.

But as the flames begin to spread, the fire leaps from house to house, street to street, growing stronger and more ferocious.

People try to stop the spread, but they don’t use the right tools. Their efforts are unfocused and uncoordinated.

Soon, the fire grows out of control, and before you know it, the blaze has swallowed vast swathes of the city – taking lives and livelihoods with it, transforming the London skyline forever.

Now think of financial crime as that spark in the bakery.

Sure, it may start small – just a minor fraud or a simple scam. But if left unchecked, if not targeted and contained, it can grow into something much larger … sweeping through the economy, damaging businesses, damaging livelihoods and damaging trust in our financial systems.

Fighting financial crime – focusing on outcomes

Like the firebreaks that could have saved much of London, a targeted approach to tackling financial crime is what I want to talk about today.

An approach that uses data to spot outliers and issues.

An approach where we share what that data is telling us – and what good practice and poor practice look like – so everyone can understand the outcomes we expect.

Because a targeted, and outcomes-focused approach is essential if we are to bear down on financial crime in an effective and proportionate way.

A targeted approach to enforcement

Of course, we are, first and foremost, a regulator.

And we enforce our regulations with vigour.

Because financial crime costs every one of us here today – consumers and firms alike.

It violates the financial systems we rely on to live our everyday lives and uses them against us … It fuels all manner of harmful activities from terrorist financing to money laundering, to fraud … And it damages the integrity of our markets, undermining our international competitiveness.

That’s why fighting financial crime is a key commitment in the FCA’s 3-year strategy[3].

Cases are complex and can be difficult to prosecute, but where we see harm and where our objectives are engaged, we will use all of the tools in our regulatory “toolbox” to respond.

In the last financial year, we charged 21 individuals with financial crime offences; the highest number of charges we have achieved in any single year.

In 2023 we secured 3 times as many freezing orders as in 2022, restraining more than £21m in assets of individuals under investigation.

And just last month we took firm enforcement action against the auditor PwC[4], fining it £15m for failing to alert us to suspected fraudulent activity.

So, we are using our powers more assertively than ever.

Preventing fires breaking out

But I do not want us to be constantly hosing down fires where they arise.

I want us to also be making strategic interventions to stop them breaking out in the first place.

That means working with partners across the whole UK system, through the UK’s public and private partnerships and the economic crime plan[5] at the same time as driving a more integrated and targeted approach to tackling financial crime across the FCA.

A first step is how diligent and assertive we are at the gateway with those seeking authorisation.

It’s rightly a rigorous process.

We want firms to have the right systems and controls in place before we authorise them, so they aren’t used to facilitate financial crime.

In the last financial year, 36% of Annex 1 firms – that is firms seeking to register with us for anti-money laundering purposes only – withdrew their applications, or had their applications rejected.

It is our job to make sure standards are met. And we make no apology for that.

Let me be clear though – we don’t want to reject applications.

Those firms who have the right standards, following the guidance and expectations that we have clearly set out, can and will achieve registration.

And I would like to see more of this – more firms meeting the money laundering standards that we expect, first time round.

Innovative and data-led

When it comes to countering financial crime, we know we must embrace change to stay ahead of the criminals.

Whether it is pre-empting the way they use new technology such as AI, or coming together to share and interrogate data … we must be vigilant, constantly improving our systems and controls against those seeking to exploit them.

One area where our innovative methods are bearing fruit, is in reducing the risk to consumers of illegal or non-compliant financial promotions.

Using data and technology, we have increased our capacity to identify illegal financial promotions on websites or social media.

We are tackling fraud faster by scanning approximately 100,000 websites every day to identify those that appear to be scams.

Over 10,000 potentially misleading adverts[6] were either amended or withdrawn because of our action in 2023 – an increase of 17% on 2022.

And last year we hosted a 3-day investment fraud tech sprint drawn from regulatory, intelligence and law enforcement agencies to design new ways to tackle this type of fraud.

Using the FCA’s own supervisory reach, we have also created a dedicated financial crime function within our Consumer Investments department – an area where we have seen evolving threats of financial crime and fraud.

Their work is proactive and highly targeted: identifying outliers, spotting trends earlier and snuffing out threats before they spread like wildfire.

For example, a high turnover of money laundering reporting officers, frequent changes to a firm’s registered name, or significant changes to the nature of service provided post FCA-authorisation, are all risk indicators that can raise a red flag.

Over the past 18 months the team have been out on unannounced spot visits, gathering evidence and intervening to prevent harm.

This has included placing requirements on firm’s permissions, imposing asset restrictions and, in certain cases, even stopping firms providing financial services altogether.

More of that assertiveness I was talking about earlier.

We are working with other regulatory and law enforcement partners too. In July we were pleased to join with the National Crime Agency (NCA) and 7 UK banks as part of a major NCA-led project[7] to identify and act against organised crime.

A joint team analysed account data shared by participating banks that suggested potential criminality.

As well as identifying several new organised crime networks, the project has delivered vital intelligence in support of wider NCA and law enforcement investigations.

It’s an innovative approach, and one yielding real outcomes.

It also highlights the importance of having the FCA at the table alongside industry and law enforcement to answer the question: what will the regulator think of this?

Taking a system-wide approach

And while of course the financial services sector must continue to take the lead, it’s important to emphasise we are part of a whole system response – a bucket brigade, if you will, to tackling and extinguishing financial crime.

As part of the national economic crime plan and fraud strategy[8], we are working with partners to support system-wide improvements.

Because we are clear it takes the efforts of both public and private sectors – including regulated firms themselves – to reduce and prevent financial crime.

In the past year, we have taken a leading role in influencing Big Tech companies to stop scams and illegal ads from appearing on their platforms.

We’ve worked with the likes of Google, Bing, Meta and others, and they now ban paid-for adverts for UK financial services that are not approved by an FCA-authorised firm.

We have also worked with Apple and Google to remove apps from their stores that breach our financial promotions rules, further protecting UK consumers.

This risk-based approach really works when outcomes are aligned, and the risk is collectively managed across multiple industries. And it’s a powerful example of how targeted, proportionate action can lead to positive outcomes.

Elsewhere, we are using our powers through the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) to improve standards in the legal and accountancy sectors.

In the last financial year, OPBAS used its powers to direct 2 Professional Body Supervisors (PBSs) to take action to remedy money laundering shortfalls. Just one example of how OPBAS is using an increasing range of regulatory tools and powers to hold PBSs accountable.

Our joint efforts are working

Financial crime is notoriously difficult to quantify.

But the data tells us that the system-wide work to block fraud at source, educate consumers and disrupt those engaged in fraud, is having an impact.

The latest ONS crime figures[9] for the last financial year showed that fraud had decreased by 10%, with reductions in bank and credit account fraud, advance fee fraud, and other fraud also falling.

The rate of growth in the number of investment fraud victims slowed from 28% in 2022 to 4% in 2023.

Moreover, the reported losses suffered by victims reduced by 40% in 2023, compared to 2022.

It’s genuine progress – but progress that needs to be sustained. That’s why fighting financial crime will remain at the heart of the next FCA multi-year strategy.

Proportionality

I’m often asked if our response to financial crime is proportionate.

I know that the cost of financial crime compliance, including customer due diligence and anti-money laundering, can be significant.

What I would say is that all the right elements are now in place to shape that debate.

As part of our outcomes-based mindset towards financial crime, we are sharing our approach, expectations and findings more publicly and more frequently than ever.

Since April 2023, we have published 5 reviews of firms’ financial crime controls, sharing good and poor practice across the sector … so that firms can target their approach and know what good looks like.

Once we have those basics in place, using the right data to calibrate risk and respond accordingly, it’s easier to see outliers – and then easier to take forward a more meaningful discussion on proportionality.

Conclusion

So where does this leave us? I come back to the importance of being driven by the outcomes we wish to achieve.

357 years ago today, the Great Fire was raging just metres from where we gather today.

The lessons learned from that disaster are as relevant now as ever.

If our strategy isn’t right, if we don’t use the right tools, if we just spray water around in a disordered fashion, we might dampen the surroundings, but the fire will continue to burn.

But by working together, all hands to the pump … equipped with the right tools and aiming directly at the flames … we can prevent small sparks from becoming devastating infernos that threaten the financial health of our entire nation.

I look forward to continuing to work with you all on this.