Financial Crime: Analysis of firms' data – first report

28 November 2018

On 13 November 2018, the FCA published the results of their first financial crime survey. Over 2,000 UK firms, including all UK-based banks and building societies, were required to complete a questionnaire in order to create a report which presents ‘a collective view of the activity being undertaken by firms in the UK to combat financial crime across the industry.’ A statement reinforced in a recent speech by FCA’s Head of Financial Crime Rob Gruppetta.

Going forward, the hope is that this data will be collected annually so that the FCA can gain an understanding of how a variety of financial crime threats evolve over time.

The report covers four main areas:

1. The number of customers deemed to pose a higher risk of financial crime

The survey showed that the firms who had responded had a total of 549 million customer relationships, over three quarters of which are in the UK. 

The report sets out how many of these customers were deemed to pose a higher money laundering risk, with firms notably identifying 120,000 politically exposed persons (PEPs) among their customer bases.

Overall, the report found that ‘high risk customers’ represented a very small proportion of the total customer base.

2. An overview of the work that industry is doing to tackle financial crime

The report also looks at what is being done, on a practical level, to fight financial crime. It found that a considerable amount of time and resources are being used by firms to address and combat financial crime. The report estimates that the financial services industry is spending over £650 million annually in ‘dedicated staff time to combat fraud, money laundering and other financial crimes’.

The report also found that staff at all levels, and automated systems, that reported knowledge or suspicion of money laundering had escalated 923,000 suspicious cases internally. After investigation, 363,000 of these cases were reported to the NCA by the firms’ Money Laundering Reporting Officer. Additionally, over 2,100 terrorism-related suspicious activity reports were made to the authorities by the firms.

Firms are conscious of the potential risks of prospective clients, turning away 1.15 million individuals due to concerns about financial crime. Existing customer relationships are also being ended due to unacceptable fraud or money laundering risks.  

It was found that engagement between the police forces and financial firms was crucial to supporting a range of enforcement investigations. Interestingly, firms were not only alerting law enforcement agencies about suspicious activity but they also handled many requests for investigation from the police. In many cases, prosecutors were heavily relying on evidence provided from firms about their customers.

3. Industry views on fraud risks

Firms were asked to rank the ‘top three most prevalent frauds the FCA should be aware of’. The results predictably showed cyber crime to be a key concern, with phishing, computer hacking and malware enabled fraud all ranking in the top five prevalent frauds.

Data was also collected on the industry’s perceptions of who the perpetrators of fraud are. This understandably varied with who is suspected to be committing certain types of fraud, with employees being believed to be responsible for most expenses frauds and organised crime groups perceived as being to blame for most cyber crime.

The report also provided an overview of who firms believe are the primary victims of certain types of fraud. Either customers or the firm itself were seen as the primary victim of the majority of the crimes. For example, debit card fraud and account takeovers were believed to be mostly suffered by customers, while crimes such as computer hacking and insurance fraud being predominantly felt by the regulated firms. 

Overall, most respondents were off the view that fraud was increasing, particularly computer enabled crimes.

4. Firms’ view of country risks

Respondents were asked to rate countries based on their perceived financial crime risk. This therefore covers a variety of threats, including ‘sanctions breaches, fraud and bribery’. The data was based on which countries the firms has assessed and considered to be ‘high risk’ so therefore some jurisdictions may have come further down the rankings because fewer firms have performed a risk assessment of these places.

The aggregate data showed the top 5 countries which firms had assessed as being high risk were Iran, Panama, Russia, Iraq and Laos.

Conclusion

As this was the first time this data has been collected, it has provided a useful snap shot of the  variety and nature of financial crime threats posed to firms over the previous 12 months. Although it is difficult to acquire reliable figures on the level of financial crime as by its very nature, it is supposed to be secretive, charting the industry perspective on the risks of financial crime, and how this changes over time, should be a useful tool for both the firms themselves and policy makers. 

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