Reducing and preventing financial crime

In 2022 our 3-year strategy recognised that fraud was a rapidly growing and complex issue. Without a national plan at that time, we had to set targets that aimed to reduce growth in fraud as a priority, before aiming to reduce fraud outright. In tackling fraud, we are actively using the full range of our regulatory toolkit and our work includes many different initiatives delivering under different workstreams.  

Our strategy also recognised investment fraud and authorised push payment (APP) fraud as 2 particular priorities, given their potential for life-changing harm to consumers.  

There is more to do, but our collective work is having an impact. 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%. By the end of 2023 this had reduced significantly, overall losses were down 40% with the number of investment fraud victims growing slightly, by 4.3%[5]. This downwards trend is also reflected in the latest Crime Survey for England and Wales figures, with the Home Office specifically highlighting the FCA’s work with regulated firms and online platforms as key drivers of the decrease. 

One of the biggest levers available in the fight against fraud, and wider financial crime, is prevention. Prevention is reinforced through working with industry and partners to strengthen the wider system to reduce and ‘design out’ the risk of harm where possible, and through initiatives to inform and educate the public. We have continued to invest in fraud prevention initiatives, often working alongside public and private sector partners. Notable work here includes:

• We issued 2,286 warnings about possible scams in 2023 (an increase of 21% from 1,882 in 2022) alerting consumers that firms and individuals on our Warning List[6] were operating without FCA authorisation.
• Alongside the Advertising Standards Agency, we engaged social media influencers and their agents to give them clear information about what constitutes an illegal financial promotion. In July 2023, we published our consultation on new standalone Financial Promotions Guidance for social media[7]. We also supported Ofcom in examining how legislative requirements around financial promotions could be included in its draft codes and guidance.
• Persuading platforms such as Google, Bing and Meta to tackle illegal financial promotions and scam adverts. They now ban paid-for adverts for UK financial services that are not approved by an FCA authorised firm.
• In October 2023, with the National Crime Agency (NCA), we jointly hosted a 3-day multi-agency TechSprint with law enforcement partners. The first event of its kind, it aimed to foster better collaboration and data sharing to combat investment fraud. The TechSprint provided a testbed for tactical, cross-agency collaboration and directly led to developing solutions which participants are currently exploring. There is now an opportunity to use this network to generate tangible outcomes and we are working with our partner agencies to mobilise a domestic and international ‘Community of Practice’ to enable effective intelligence-sharing and help identify and disrupt fraudulent activity.
• Since April 2022 we have run 6 ScamSmart[8] campaigns (covering investment fraud, loan fee fraud, and pension scams). In 2022 our ScamSmart campaigns guided 11% more consumers to our Warning List than in 2021. Our 2023 loan fee fraud campaign continues and has generated over 200 pieces of national and regional media coverage as we try to inform and educate the public to prevent them from becoming victims.
• We have conducted and published multi-firm reviews on how firms mitigate the risks of fraud, including on money mules[9], anti-fraud controls and complaint handling[10] so that we can share best practice across industry as well as highlight areas for improvement.
• We delivered an anti-fraud assessment framework across the FCA to help us assess the strength of the anti-fraud systems and controls of the firms we regulate. The framework was used as the basis of our multi-firm work on anti-fraud controls and will continue to be used for all future reviews.
• We are working with the Payment Systems Regulator (PSR) to support the mandatory reimbursement[11] of APP fraud, which is expected to come into effect in 2024.
• We are working with both the Treasury and PSR on the legislative and regulatory change necessary to enable firms to slow payments where they suspect fraud.

Alongside prevention, we recognise the need for a strong enforcement response to maximise the deterrence impact of our fraud work. We have taken robust action with firms and individuals who dishonestly abuse their regulated status. At the same time, we have invested more in our capacity to deal with the harm caused by those who operate outside our regulatory perimeter. Since April 2023, we have charged 15 individuals with fraud offences, with more to be charged imminently. We are committed to taking enforcement action within our remit and will continue to work with partner agencies to strengthen our collective enforcement response under the national Fraud Strategy.

Finally, we have worked to improve our own capability to tackle fraud, investing in our systems together with developing the strength and capacity of our people, with over 70 new colleagues joining us to work on fraud-related initiatives since April 2022.

Our remit of approximately 50,000 regulated firms includes around 18,000 firms for which we are also the statutory money laundering supervisor. Our approach to money laundering and sanctions involves making sure that would-be new entrants have proportionate financial crime controls for the business they plan to undertake, driving continued improvements in regulated firms and removing firms that cannot establish adequate financial crime controls. Our work is data and intelligence-led and delivered through partnership with the National Economic Crime Centre (NECC) and other authorities. Progress includes:

• Developing and rolling out a synthetic data sanctions testing tool that allowed us to test over 90 firms and publish the results in September 2023[12].
• Maintaining a robust and proportionate approach to authorisation. By the financial year to 31 December 2023, 40% of Annex I applications (firms offering certain services that are registered with us for anti-money laundering purposes only) were rejected, withdrawn or refused, along with over 88% of Crypto registrations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). Those firms who have the right standards, following the guidance and expectations that we have clearly set out, are achieving registration with 43 now registered[13]. But those that do not have sufficient AML controls, designed to ensure confidence in the financial system and prevent money laundering, can expect to be refused.
• We have conducted and published multi-firm reviews, including on money laundering controls related to cash through the post office[14], to share our expectations of how firms should ensure their controls are proportionate to the risk.

Through OPBAS, we have sought to drive improvements in the 25 Professional Body Supervisors (PBSs) for anti-money laundering in the legal and accountancy sector. In April 2023 we published our report[15] setting out that while professional bodies are continuing to demonstrate good levels of compliance with money laundering regulations, improvements in how effectively they supervise is still needed. OPBAS also published a review of Trust and Company Service Provider risk[16], with recommendations.

OPBAS will continue to use all the regulatory tools and powers available within the current anti-money laundering framework to hold PBSs accountable. However, the lack of consistent effectiveness across PBSs indicates that legislative reform is needed to improve standards of supervision.

Consistent with the national Economic Crime Plan and Fraud Strategy, our work is based on a partnership approach. This recognises that it takes the efforts of both public and private sectors, including regulated firms, to reduce and prevent financial crime.

We have sought to regularly engage the private sector through their associations, through public-private structures such as the Joint Money Laundering Intelligence Taskforce (JMLIT) and directly. These efforts include:

• Publishing our 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[17] 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 (Economic Crime Plan 2, Action 33[6]).

Technology is transforming fraud and money-laundering detection, but cyber fraud, cyber-attacks and identity fraud are increasing in scale, sophistication and impact as artificial intelligence (AI) becomes more widespread.

Criminals are using technology including AI to target consumers and firms. In recent years they have been able to circumvent banking controls by using sophisticated social engineering techniques to trick victims, making detection much more challenging. Firms must ensure that systems and controls keep up with the increasing sophistication of criminal groups and should use the advances in technologies to help prevent financial crime. Firms must calibrate how they use technology to their individual requirements to be as effective as possible. But that does not mean they should calibrate once and then ‘plug and play’ forever. Firms need to keep fine tuning their response to combat the changing threat.

Using synthetic data has transformed our work to combat sanctions breaches and we will continue to build our arsenal of data and analytics tools. Our Feedback Statement on the Synthetic Data Call for Input[17] gave valuable evidence of industry perspectives on how firms are using this technology, with 48% of respondents using synthetic data primarily for detecting financial crime.

To build on the insights from our APP Fraud TechSprint in 2022, we held workshops in September 2023 to introduce enhanced synthetic datasets. We also held panel discussions on the role of privacy, secure data sharing and the evolving fraud environment. These events gained widespread engagement with experts across the areas of fraud prevention, consumer protection, data protection, behavioural insights and innovation. The provision of real world pseudonymised banking datasets, and the subsequent launch of enhanced synthetic datasets, were key milestones in our work to support useful innovation.

The synthetic datasets are available on the Permanent Digital Sandbox[18] for innovators to develop solutions to tackle fraud, allowing for further feedback and iterative mechanisms.

Suggested questions for firms' boards to ask:

• Does my firm know how criminals are likely to be using new technology to target our customers and business? Does my firm have a way of keeping updated on new techniques or typologies?
• How is my firm keeping updated with good practice? Is my firm targeting investment in technology and data to address our firm’s and customers’ key financial crime risks?
• How is my firm measuring the outcomes we are achieving here?
• If my firm is using third party technology to detect, is the technology calibrated to the risks my firm faces and its customer base? 

Financial crime is not just an issue for the financial sector, but for other sectors too. One of the key factors in successfully reducing financial crime is for firms and wider partners to work collaboratively. Criminals will always move around to find and exploit the weakest firms and sectors, so sharing data and intelligence is a vital tool in staying one step ahead.

We have a key role to play in the Economic Crime Plan 2 which sets out a joint vision for public and private sectors to deliver a plan to strengthen the UK’s financial crime defences.

Internationally, we continue to strengthen relationships with jurisdictions where supervisory cooperation is needed to address cross-border financial crime risks. We want to help achieve a global financial system with an effective and aligned set of international standards and policies to help combat financial crime.

In March 2023, we established the Synthetic Data Expert Group[19] (‘SDEG’) to further explore how financial markets can use synthetic data in response to the difficulties firms face in accessing and sharing data in financial services. The group brings together 21 experts across financial services, the public sector, data and technology vendors, and consumer groups, and will run for at least 18 months. Firms should be encouraged by the progress of these technologies and how they might be used, for example by ensuring personal data is protected. Firms often cite privacy risks as the main reason they cannot take forward innovative data projects or take part in data sharing initiatives.

Pay UK and UK Finance’s work on the new Enhanced Fraud Data system[20] should see an increase in intelligence sharing between payment service providers once the system is implemented in 2024. This will further strengthen firms’ abilities to stop fraudsters from using them as conduits for financial crime.

The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) is housed within the FCA and supervises the 25 PBSs in the legal and accountancy sectors. It found that none of the PBSs it assessed in the 2022/23 assessment round[21] had fully effective intelligence and information sharing. Improved system coordination is a key aim of the Government’s proposed reform of the anti-money laundering supervisory regime. It requires effective sharing of information and intelligence and is something we expect PBSs to take forward.

We are working with law enforcement partners such as the police to help design and introduce better intelligence sharing and prioritisation across the financial sector. This will support the work of the new National Fraud Squad, announced as part of the Fraud Strategy[22]. We have worked with the National Crime Agency and other partners on fraud campaigns focused on pursuing offenders and protecting consumers. We actively contribute to the annual National Strategic Assessment[23] of Serious and Organised Crime.

As part of our work on the Economic Crime Plan 2 we are also examining how we can help strengthen the existing system by developing a single assessment of each financial crime threat. This will involve setting agreed priorities to guide the work of all parties to inform a better understanding of system-wide risk.

Suggested action:

• We strongly encourage firms and cross-sector partners to participate in data sharing initiatives and explore the latest advances in data sharing technology to improve collaboration. This will result in a more informed view of economic crime threats.

Raising consumer awareness is essential to combatting financial crime. According to UK Finance’s Annual Fraud Report[24], in 2022, due to banks’ investments in fraud detection technology, the industry was collectively able to stop 61.5p in every £1 of attempted unauthorised fraud from occurring. One outcome has been that fraudsters are now increasingly targeting consumers directly to convince them to release funds for seemingly legitimate purposes. In the first half of 2023 there was a 22% increase in the volume of APP cases compared to the first half of 2022. This shift makes it essential that consumers are supported and educated on how to spot the signs of a fraud.  

Our ScamSmart[11] campaign raises awareness of investment, pension and loan scams and drives consumers to our Warning List[9] where they can check whether a firm is regulated by us before they invest. In 2021 we launched our InvestSmart[25] campaign targeting younger investors though social media messaging. 

There are several other initiatives supporting consumer awareness including Stop Scams[26] a not-for-profit private sector collaboration to prevent harm and loss caused by fraud, and Take Five[27], a national advice campaign to prevent fraud. However, APP fraud remains prevalent. We welcome and support the plans under the Government’s Fraud Strategy to launch a simple cross-government campaign to streamline and amplify anti-fraud communications.

Suggested questions for firms' boards to ask:

• Is my firm raising awareness among our customers of the fraud risks relevant to the business we do with them?
• Are we using/being consistent with the language/approaches proposed by public bodies or our association?
• Are we getting feedback? How do we know if it is working?

Measuring the effectiveness of fraud and money laundering prevention will allow firms to be clear on the impact their interventions are having. We welcome the PSR’s publication of APP fraud performance data[30] which ensures greater transparency and should encourage firms to continue to seek outcome-based, measurable solutions to the threat. Through increased transparency and tangible outcomes and metrics, consumers will have greater confidence in the anti-fraud efforts of the financial services industry.

The PSR’s new reimbursement requirement will come into force in 2024, making sending and receiving firms liable for reimbursing victims. We expect this measure to further incentivise firms to find innovative solutions to tackle APP fraud for both incoming and outgoing payments. Having robust outcomes and metrics in place will clearly define the benefits of the solutions they have developed. This will allow firms to explain how they are having an impact, giving consumers and other stakeholders greater confidence in the financial services industry.

We have a robust outcomes and metrics framework[31] to measure the effectiveness of our financial crime work. We use a mix of market metrics, survey data and internal measures to track progress against our strategic aims and help decide where we should use resources.

Figure 1 shows that we issued 34% more consumer alerts on our Warning List in 2022 compared to our 2021 baseline and made further progress in 2023 by issuing 21% more warnings than in 2022. By increasing the number of warnings we issue, we increase the chances of consumers getting a positive search result when searching the list. We aim to warn consumers about as many unauthorised firms as possible before they invest, which we hope will lead to fewer victims of investment fraud.

Figure 2 shows the number of consumers accessing the Warning List. In 2022 our ScamSmart campaign guided 11% more consumers to the list than in 2021. By increasing the number of consumers using our tools we protect a greater number and, in this way, contribute towards slowing down or reducing investment fraud rates.

Figure 3 shows us how many consumers were contacting us about a potential scam before having invested. We use this as a proxy to measure the effectiveness of our ScamSmart campaign and the general level of consumer awareness. The chart shows that we are seeing an increasing proportion of consumers calling us before they have invested in a potential scam product, which suggests consumers are getting better at spotting the signs of a scam.

Suggested action:

• Firms should be able to measure their own effectiveness at preventing financial crime through using outcomes and metrics. We encourage firms to consider how their interventions could contribute towards a reduction in overall rates of financial crime. 

Suggested questions for firms' boards to ask:

• What metrics is the board getting on the firm’s outcomes on tackling financial crime?
• How are these metrics tied to activities or work programme metrics, and budgets?
• How does the firm compare with its peers?