When we think of Financial Crime, many of us will think of money laundering, fraud, tax havens and perhaps complex organisational structures to disguise the true origin of wealth. Financial crime is not new and there have been many examples of unscrupulous individuals and firms using the tools at their disposal for self-gain. Financial Crime does not only operate in a dark alley, in a run-down part of town. It has reached some of our leading financial institutions. Examples include: HSBC, Standard Chartered Bank, and the Royal Bank of Scotland, all of which have paid large fines due to their failure to prevent financial crime within their respective organisations. The fines have continued in the insurance sector, with big players such as two of the largest insurance brokers having been subject to enforcement action by the regulators.

Financial Crime stretches further afield than our financial institutions. How can we forget the £16 million Harrods shopping list of Zamira Hajiyeva, the wife of Jahangir Hajiyeva, the former chairman of the state owned International Bank of Azerbaijan. This led to Mrs Hajiyeva being the first subject of the UK’s first Unexplained Wealth Order (UWO). The National Crime Agency continues to investigate this matter.

So, are regulators really doing enough to prevent financial crime? 

If we throw into the mix the biggest health and economic crisis since the great depression of the 1930’s logic would suggest that financial crime will only go one way, up. As individuals and businesses try to digest the impact of the COVID -19 pandemic, for many they will be asking themselves, how do I survive this crisis? With an already overstretched public sector, will police forces still have time to investigate financial crime matters? 

The pressure on individuals and businesses is unprecedented. The sad reality is that despite the huge bailout packages issued by the governments around the globe, many Small and Medium Enterprise (SME’s) may never return to business and personal finances including pensions may never return to their pre-crisis levels. I can’t think of a time when we have needed our financial services regulators more. The Financial Conduct Authority, along with the Prudential Regulation Authority and the Bank of England must provide assurance to our already decimated financial markets and protect the most vulnerable. 

The Financial Conduct Authority (FCA) has released its Business Plan for 2020/21 with Financial Crime again being an area of priority. The key themes are:

  • Making greater use of data to help identify firms and areas at risk of financial crime,
  • Increased focus on money laundering,
  • Possible extension of the Financial Crime Data Return to more firms to help strengthen supervision as part of the wider Anti Money Laundering strategy,
  • Increased focus on fraud, ensuring firms have adequate control frameworks, and
  • Protecting consumers from fraud.

So how will the COVID – 19 affect the FCA’s ability to meet these areas of focus? Well in short, the FCA like all of us simply do not know when we will return to normality. We are all having to adapt to ensuring tasks are completed from our remote locations, with regular ‘Zoom’ calls to establish progress. I suspect that the FCA will continue its investigatory work to ensure those most at risk, generally consumers in the retail space, are provided with much of its resource.

The manner in which companies and the insurance and broader financial services industry as a whole deal with the current crisis will live long in the memory. It is of paramount importance that firms continue their good work in preventing financial crime, it is equally important that insurance firms continue to service their clients, both through innovative products that meet their needs and on the claims side when needed. 

It is a perfect environment in many respects for financial crime to thrive. Individuals and businesses alike are struggling financially, so perhaps the temptation of carrying out fraud to improve their own position will be too tempting for some. There are those who believe that a false insurance claim is ‘victimless’: who will this affect? Insurance companies with millions in reserve?  There is perhaps a belief that due to the remote nature of the workforce, now is the best time to commit fraud as perhaps attention is on survival rather than a small false insurance claim. One thing we do know for sure is that false insurance claims cost the industry billions each year, which in turn is paid for in higher premiums for everyone else.

The FCA will not take their foot off the gas, they will still expect businesses to continue to evolve their controls, to ensure alignment with emerging risk throughout this crisis and beyond. There is the expectation that despite this very difficult period, businesses owe a duty of care to their customers, and to the wider market to ensure they have the mechanisms in place to identify, disrupt and eradicate all forms of financial crime within their organisation.

We do need to consider that the enemy is not always outside the organisation. The current remote workforce may mean the regular team catch ups are not happening and the usually clear level of oversight may be a little more blurred, thus increasing the risk that internal fraud going unchallenged.

As the Lloyds market continues to enter the modern technological age, the importance of oversight and challenge need not be diluted but enhanced. The modern data capturing tools still need to be run during this time to identify underwriters operating outside of their limits or claims staff making payments to a third party without justifiable course to name two areas of consideration. The FCA has quite rightly stressed the importance of data capture and how it can be used to combat financial crime in its 2020/21 business plan. The FCA will no doubt be conducting thematic reviews in this area to test the markets adoption in terms of the use of data and how it is being kept safe.

Both consumers and businesses have been warned that criminal gangs are taking this opportunity to steal personal and intellectual property information with phishing being the most common method used.  As employees connect to corporate networks from a plethora of unknown or untrusted devices such as personal computers, phones or laptops, this makes it very difficult for the businesses to ensure the network remains safe as criminals look to exploit this new way of working.

There is also a scam in operation where individuals are receiving a text to their mobile device stating that they have left the house too many times during lockdown and therefore need to pay a fine and another offering payment of monies under the government schemes in return for bank account details. There will no doubt be further scams in operation in the coming weeks and months.

The Financial Actions Task Force (FATF) have also weighed in providing guidance on how to protect individuals and businesses from illicit financial activity during this crisis. Further information on this can be found in this statement by the FATF President: COVID-19 and measures to combat illicit financing.

It’s not all doom and gloom, this crisis really does provide the opportunity to every business to test its’ continuity plans, ensuring that cross departmental cohesion remains in place to prevent such crimes despite the remote nature of the workforce is essential as is the need for firms to remain vigilant against potential frauds and ensure that their anti-fraud controls are still operating effectively. A failure to do so could very well result in enforcement action from the FCA.

If you would like to discuss any aspect of the way your firm manages its’ exposure to financial crime and the regulatory obligations under which you operate, please speak with ICSR Director Kenneth Underhill in the first instance.

Nicky Hasler

Financial Crime Expert and ICSR Talent Pool Independent Consultant

Advisory | Resourcing | Training