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Eighteen months into its 3-year strategy aimed at reducing and preventing financial crime, the Financial Conduct Authority (FCA) has provided a comprehensive summary of its progress thus far. In a post, published on 8 February 2024, the FCA also identified four key areas where further effort is needed.

Summary of Impact 2022-23

Fraud

The FCA’s initial strategy identifies fraud as a complex and growing issue. The FCA recognises investment fraud and Authorised Push Payment (APP) fraud as two priorities, particularly due to the significant harm they can have on consumers. Whilst there is still more to do, the FCA has identified various successes such as collaborative initiatives with tech giants like Google and Meta, along with targeted campaigns such as ScamSmart, which have helped raise consumer awareness of investment fraud. The FCA also mentioned working to support the Payment Systems Regulatory (PSR) on the new APP fraud mandatory reimbursement scheme due to come into effect in October 2024.

Alongside these prevention initiatives, the FCA’s enforcement activities have intensified, particularly with firms and individuals who dishonestly abuse their regulated status. An increase in enforcement action has been seen across the board, but the FCA is putting an especially strong focus on fraud to align with the UK Government National Fraud Strategy.

Money laundering and Sanctions

The key focus in preventing money laundering and sanctions has been ensuring new entrants into the regulated market have appropriate financial crime controls, as well as ensuring authorised firms are maintaining and improving their existing controls. The FCA has rolled out new financial crime compliance initiatives such as a synthetic data sanctions testing tool and has conducted multi-firm reviews for authorised firms. However, in Thistle’s view, the biggest impact here has been the FCA’s approach to authorisation (which we support firms with). The FCA outlines an increasingly robust approach to authorisation, rejecting many Annex 1 applications and cryptoasset registrations. If a firm’s control framework is not tight, the FCA will reject the application.

Working with firms

The FCA has sought to engage collaboratively with the private sector, to align with the expectations set out in the national Economic Crime Plan and Fraud Strategy. Through initiatives like TechSprint events, publication of review findings and webinars, the FCA is actively engaging firms to enhance their financial crime controls.

Four key areas of focus

Data and Technology

Criminals are using more sophisticated methods at an increasing scale, including artificial intelligence (AI) and social engineering techniques to trick consumers. As criminals’ use of technology becomes more advanced, firms must maintain adequate investment in their systems and controls to keep pace. Where firms are using third party technology, the controls must be calibrated in line with their customer base to ensure they are working effectively. Once calibrated, the technology should be tested regularly and fine tuned to keep up to date with the rapidly changing threats. The FCA mentions the use of synthetic data to train models and tackle risks such as fraud more effectively and encourages firms to develop solutions using synthetic datasets in the Permanent Digital Sandbox.

Collaboration

The FCA raised collaboration and data sharing as a key factor in reducing financial crime. This is something the industry has been discussing for years but has been challenging to implement given privacy concerns. However, the FCA described several initiatives that it is working on to bring groups together to collaborate both domestically and internationally, and across sectors. For example, the Pay UK and UK Finance Enhanced Fraud Data system and the Synthetic Data Expert Group. The FCA recommends firms consider engaging in these sorts of initiatives to enhance their financial crime compliance.

Consumer Awareness

Many of the FCA’s successes from the past 18 months involve initiatives focused on consumer awareness. Examples of this are their ScamSmart and InvestSmart campaigns – the ScamSmart campaign raises awareness of investment, pension and loan scams, whilst the InvestSmart campaign educates younger investors through social media messaging. When consumers are more aware of risks, they are much more likely to spot issues before falling victim to fraud. Firms need to ensure that they are raising awareness of fraud risks, and that they are being consistent with the language used by the FCA and other public bodies.

Metrics – Measuring Effectiveness

Measuring the efficacy of financial crime controls helps firms to understand how interventions in their frameworks affect overall outcomes of tackling financial crime. Board members should have sight of metrics on the outcomes of the firm’s financial crime controls and ensure that the metrics are adequately tied to actions and budgets. In the longer term, this also enables firms to innovate and adapt to evolving challenges. Solutions to tackle financial crime can be improved by evaluating the effectiveness of the firm’s controls.

What this means for firms

In light of the FCA's intensified focus, regulated firms must prioritise smart investment in their financial crime controls.

Firms need to ensure their controls are adequate, proportionate, and tailored to their risks. Investing in more sophisticated technology is becoming an expectation from the FCA, and firms that do not invest in their compliance framework put themselves at risk of harsher enforcement.

New requirements in relation to APP fraud are coming into force later this year, making sending and receiving firms liable for reimbursing victims. The aim of these requirements is to encourage firms to enhance their fraud awareness, prevention, and detection capabilities – looking at your firm’s 2024 Fraud Strategy is key.

Firms are also encouraged to engage with industry bodies, other firms in the industry, and the regulator to collaborate on financial crime prevention. Thistle is always here to talk, collaborate, advise, and learn!

Author - Robbie Cullen (Senior Associate)

How can we help you? 

Thistle Initiatives has supported firms for over 10 years as a trusted financial crime compliance and regulatory advisor. In addition to assisting you as-and-when, our team of specialists can serve as your right hand in meeting and complying with FCA regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Contact our specialist Financial Crime team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.