Summary
This report is the second we have published on economic crime in the UK. Our first inquiry—Economic Crime - Anti-money laundering supervision and sanctions implementation—was focused on money laundering, terrorist financing and sanctions in the UK as well as the regulatory and legislative landscape. This inquiry has focused on the scale of economic crime faced by consumers, ways that financial firms are combating economic crime, how economic crime is investigated, and consumer’s rights and responsibilities.
In the first half of 2019 over £600 million was stolen from consumers by fraudsters. It is a serious problem, with scams getting ever more sophisticated, from so-called “romance fraud” to posing as a consumer’s internet provider. Authorised push payment (APP) in which a consumer is conned into processing a payment to an account controlled by a criminal is a new and growing problem.
In the first half of 2019, the industry prevented £820 million of unauthorised fraud. One key area of prevention, due to begin implementation soon, is Confirmation of Payee. To date fraudsters have relied on the account name not being matched to convince consumers to transfer money. This continued despite banks knowing this was a weakness in the system. The new system will match actual account names with those provided by consumers and flag any differences. While it will not solve economic crime alone, it is part of the solution. Further delays to implementation should not be allowed, and the regulators should look to use statutory powers if financial firms are not ready by the March 2020 deadline.
Fraudsters often use high pressure tactics to convince consumers to transfer money, which do not allow a consumer time to consider if they are being defrauded. We recommend that all initial payments between accounts are subject to a 24-hour delay.
There have been positive technological developments which allow financial firms to track fraudulent transactions across the banking system. However, legislation lags behind, making recovery of these funds difficult. The Government should review recovery of stolen funds legislation to ensure it is fit for purpose. The FCA should set tight deadlines for financial firms to block accounts receiving stolen funds once suspicious activity has been identified.
The Contingent Reimbursement Model, which came into effect in May 2019, provides financial firms with a clear framework under which they should reimburse. We understand that the Code’s voluntary basis allowed it to be introduced quickly. However it should now be made compulsory.
Whether or not a consumer is reimbursed also comes down to whether they are deemed to be ‘grossly negligent’. The lack of definition of this term has led to inconsistencies across the sector and we recommend the regulators define this promptly. The regulators should require financial firms to provide consumers with clear guidance on what they expect of their customers in light of that definition.
We heard that there had been a lack of resourcing allocated to investigating economic crime. A national fraud strategy is only just being implemented, which will include a commitment to improve the police response to fraud. This has taken far too long and we expect a Government update within six-months of publication of this report.
The Government should require all frauds to be reported by the financial sector. It must also ensure consumers reporting fraud are told clearly how their reports will be used. The reported attitudes of staff at Action Fraud towards victims are unacceptable and the Government must set out what it has done to address this issue.
Published: 1 November 2019