FCA’s Analysis of Firms’ Data on Financial Crime

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The FCA has published its first annual financial crime survey of over 2,000 UK firms, across the financial sector, following their first financial crime return (REP-CRIM), an initiative launched in 2016. It gives a collective view of the activity being undertaken by firms in the UK to combat financial crime across financial services. The report and its analysis cover four key areas:

  • The number of customers deemed to pose a higher risk of financial crime;
  • Overview of the work that industry is doing to tackle financial crime;
  • Industry views on fraud risks; and
  • Firms’ views of country risks.

The REP-CRIM data, which is provided annually for the previous 12-month period, allows the FCA and firms to acquire robust figures on financial crime, and to have a view on issues with often profound social and economic impacts. Data in the report comes from larger firms that are subject to FCA anti-money laundering regulations. Smaller firms, with an annual turnover below £5 million, are not required to submit the return).

 The following points were noted by the FCA: 

  • Almost 120,000 customers fall into the category of ‘politically exposed persons’ in which those with prominent public jobs may be in a position to abuse their role for private gain. Similarly, firms had 1.6 million other ‘high risk customers’, on which firms are required to perform enhanced due diligence checks. It is important to remember that the same customers may appear several times in these figures because they often have financial relationships with multiple institutions.
  • An estimated £650 million is spent annually by firms to combat financial crime, with 11,500 full-time equivalent staff employed in financial crime roles. These figures do not include other costs, such as those relating to information technology systems, or the time taken by the rest of a firm’s staff on preventing financial crime.
  • During the data return period, 923,000 suspicious activity cases were escalated internally in firms. Of these, 363,000 (less than 40%) were reported to the National Crime Agency by firms’ Nominated Officers.
  • 1.15 million customers were refused service for financial crime related reasons in the data period. 375,000 existing customers were turned away for similar concerns, which also led to nearly 800 introducer relationships being ended, including over 100 with Appointed Representatives.
  • Cyber-enabled financial crime is the most noted form of financial crime, whilst rogue employees within firms were the largest predicted perpetrators of expenses crimes, where fraud results from a person abusing a position of trust.
  • The fraud types for which customers (as opposed to firms) were most often identified as the victim were pension liberation fraud (where people are, for example, misled into transferring their pension pot early and incur a big tax penalty), account takeover, and debit card fraud.
  • Surveyed firms’ views show Iran, Panama, and Russia to be the highest risk jurisdictions for financial crime, with Norway, Sweden and USA being perceived as the lowest risk jurisdictions. It is specified that this view does not represent the FCA’s opinion.

These numbers are an important milestone in the fight against financial crime, which is extremely hard to measure, inevitably resulting in an intelligence gap. Through this report, it is recognised that much of the direct threat to customers from financial crime has moved online, with phishing and identity theft cited by firms as the most widespread fraud risks they now face.

Financial firms reading the FCA’s analysis should ask themselves what they are doing to comply with FCA’s expectations on financial crime prevention, and how they are contributing to the “battle” to make criminals’ life harder in the use of the financial system for their own aims.