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Looking to the future – focus on fraud in the 2021/22 FCA Business Plan

  • United Kingdom
  • Financial services disputes and investigations
  • Fraud and financial crime
  • Litigation and dispute management

28-07-2021

The pandemic, Brexit, technology and the drive towards a greener economy, have transformed the landscape for financial services. The pandemic, in particular, has created new opportunities, but also posed greater operational and market integrity risks

The FCA has recently published its Business Plan 2021/22 (the “Business Plan”) setting out its key priorities for 2021/2022. In this it recognises that, as the landscape transforms, the FCA also needs to transform and has committed to becoming a “forward-looking and proactive regulator, that is tough, assertive, confident, decisive and agile”. It promises to be more innovative, assertive and adaptive.

The FCA sees its role as twofold: using its authority and influence to improve overall market outcomes in financial services; and to stop and prevent serious misconduct that leads to harm. This year, whilst continuing the plans put in place to improve consumer outcomes, the FCA has a new focus on tackling fraud and scams. The overall message is that the FCA recognises that a collective effort is required to reduce harm and promises to work more closely with others.

Consumer Protection

The FCA is keen to ensure that more consumers that want to save long-term, consider investment opportunities. In order to achieve this, the FCA recognises the importance of ensuring that investors can invest with confidence, understand the risks that they are taking and what regulatory protection is in place so that fewer investors lose money to investment scams.

It wants to make sure that where investors choose to invest outside the mainstream market, such as in high-risk volatile crypto assets, those investors are forewarned of the additional risks, are aware if investments are not regulated by the FCA and are prepared, in these situations, to lose all their money.

The FCA has plans to increase public awareness and confidence through:

  • its ScamSmart campaign;
  • consumer alerts about unauthorised firms and individuals
  • educating consumers as to what ‘authorised and regulated by the FCA’ actually means; and
  • launching, this year, a new multi-year investment harms campaign, targeting in particular new, less experienced investors tempted into taking higher risks than they realise when investing online.

There are also plans to create a ‘consumer investment coordination group’ with the FSCS, the Financial Ombudsman Service and the Money and Pension Service (MaPs) in order that the FCA can work proactively alongside them.

The FCA’s Business Plan sets out that it aims to: strengthen the classification of high-risk investments; segment the high-risk market; and strengthen the responsibilities of firms that approve financial promotions. It also intends to publish a 3 year Consumer Investments Strategy shortly, setting out how it will tackle firms and individuals who cause consumer harm.

Fraud

The FCA recognises that the volume and variety of fraudulent activity is increasing. It has a renewed focus on tackling the associated harm caused to both consumers and businesses, and the risk fraud poses to the integrity of the financial system within the UK.

There is a recurring theme in the Business Plan that in order to prevent harm, a collective effort at national and international level is key. Fraud commonly occurs across jurisdictions and in sectors beyond financial services. Therefore, many of the FCA’s plans include working closely with national and international partners such as the Home Office, the National Economic Crime Centre, the Payment Systems Regulator and law enforcement agencies in order to tackle the harmful behaviour of fraud.

In order to prevent and disrupt fraud and reduce harm, the FCA intends to take practical measures, such as:

1. investing in its people, technology and capabilities - particularly in data and intelligence to find and stop harm quicker and more assertively;

2. directing staff responsible for authorising and supervising firms to consider a firm’s business holistically to keep fraudsters out of financial services at the gateway;

3. improving the FCA’s contact centre policies to streamline any referrals of allegations of fraud or serious irregularity;

4. ensuring appropriate training on how: to analyse a firm’s financial information to recognise fraud or other serious irregularity; and when to escalate cases to specialist teams within the FCA.

5. conducting proactive surveillance and monitoring so that it can intervene where it sees potential fraud or other serious irregularities;

6. working closely with its partners (both in the UK and internationally) to identify the right method of intervention and to maximise the collective fight against fraud;

7. removing FCA-supervised fraudsters from the financial system; and

8. speaking out where it sees the need for legislative change, such as supporting the proposal to include investment fraud in the Online Safety Bill.

It is clear that the FCA intends to be a more assertive regulator and is looking to work with the Government as well as other partners to increase the perimeter of its powers in tackling fraud.

A key takeaway from the Business Plan is that awareness of fraud as well as the prevention of fraud should continue to be a key focus for firms and businesses. It would be wise to note how seriously the FCA is taking the increased incidence of fraud and consider ways to strengthen internal measures to detect fraud at an earlier stage and ensure strong processes are in place to enable action to take place immediately once fraud is detected.

The FCA is keen to drive up standards and improve conduct and will expect firms to meet their standards, to do the right thing by their customers and have tested contingency plans in place to deal with reasonably foreseeable events. Firms should consider themselves as part of the collective effort to combat fraud.

Digital environment

As part of its efforts to reduce harm, the Business Plan highlights the FCA’s recognition that harm can occur more quickly in today’s digital environment, meaning it is vital to find and stop harm faster. Online platforms, such as search engines and social media contribute in putting consumers at risk of harm through advertisements of financial products. This includes scams, and promotions of high-risk investments to false or misleading advertisements.

In order to combat and reduce the risk, the FCA has stated that they will continue to work with the Government to tackle scams advertised and promoted on online platforms, and to warn consumers of the risks through their own consumer campaigns.

Firms and businesses should be particularly aware of the harm of online advertisements of financial products and continue to be proactive in monitoring signs of potential fraud. Internal measures should also be put in place to enable a quick response to prevent any further harm. There should also be an increase of awareness of the risks of harm which can be achieved by encouraging customers to participate in ScamSmart. Firms should also monitor the Online Safety Bill closely and await further developments.

Conclusions

  • The FCA’s commitments hopefully mean that more fraudulent scams will be identified earlier and reduced at the source.
  • The FCA is committed to involving wider organisations – this may help to reduce banks shouldering the blame when complaints reach the Financial Ombudsman Service.
  • Banks should ensure that attention is given to FCA warnings so that customers are appraised about investment decisions, particularly in volatile areas such as crypto assets which are becoming a particular bugbear in some quarters of the financial services industry.

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