Financial crime compliance – have we lost sight of what we’re fighting for?

The UK financial services sector now collectively spends £22,000 per hour fighting fraud and financial crime according to the latest study into the impact of regulatory compliance on the market.

The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

Put another way, an average size firm spends more on its compliance operations – technology, staff and training – than a Premier League football team does bank-rolling its entire squad.

A £34 billion price tag might just be palatable if it was delivering value for money. Yet year-on-year the annual Fraud Report Figures from UK Finance suggest otherwise, as does every news report detailing the dirty money washing through the UK on a daily basis.

Perhaps the most revealing insight to come out of the True Cost of Compliance, 2023 study, however is that of all the external factors perceived to be driving compliance costs, an increasing regulatory burden topped the list, even above the evolving criminal threat itself. This begs the question – has regulation lost sight of what we’re fighting for?

According to Assistant Commissioner at City of London Police, Peter O’Doherty, the focus needs to be on prevention, disruption and how to mobilise the private sector and law enforcement. “Sharing information intelligence, understanding the problem, and working together is the way forward,” he said, speaking during an interview for Economic Crime: Revisited, a new whitepaper analysing the impact of financial crime prevention legislation and efforts over the past four years. Peter believes progress has been made, noting that for the first time ever, “all policing and crime plans across the UK specifically refer to fraud as an addressable challenge.” The full report – also featuring the views of Nick Lewis, OBE, Global Head of Integrated Intelligence and Investigations at Standard Chartered Bank, and Nigel Kirby head of the Financial Intelligence Unit at Lloyds Banking Group – is being launched by LexisNexis Risk Solutions at the Economic Crime Congress in London on 30 March.

UK Finance’s next Annual Fraud Report, detailing fraud rates for the second half of 2022 and due out shortly, is likely to show fraud levels, especially Authorised Push Payment (APP) scams, continuing to cause significant financial harm. Around half of the more than £600 million lost to scams in 2022 was reimbursed to victims by their bank, according to the last report. That rate is expected to increase this year with the arrival of the Financial Services and Markets Bill (FSMB). Critics argue that effectively guaranteeing customer reimbursement in the event of a loss removes any responsibility from the customer and amounts to bankrolling the fraudsters’ activities, whilst proponents highlight both the financial and emotional devastation fraud victims can suffer. Either way, the move is likely to prompt a renewed focus on banks strengthening their fraud defences across the financial services sector in the coming months.

The challenge of how to effectively detect and prevent APP scams has been a perpetual headache for those designing anti-fraud technology, for some time. Recent tests with a major UK bank however, showed great promise. Using a combination of pure behavioural biometrics ‘type and swipe’ signals with live call data, beneficiary information and a range of other device and location intelligence resulted in a 120 per cent uplift in scam detection and a 90 per cent increase in the monetary value of prevented fraud. APP scams are particularly cynical in the way that they manipulate vulnerable customers. Finally getting the upper hand on them with the help of AI and advanced analytics will be a major coup for banks and customers alike.

Fraudsters and criminals are expert networkers, collaborators and information sharers. No sooner is a scam dreamed up, it’s shared across the dark web for others to benefit. This is why events like tomorrow’s Economic Crime Congress are so important for our sector. We must all strive to be better networkers than the criminal networks themselves. We must not underestimate the vital importance of discussion, debate, sharing and collaborating on ideas that will form future fraud prevention strategies. You’ll find the Economic Crime Congress agenda packed with plenary discussions, dedicated streams and exhibition and networking opportunities, offering deep dives into the topics high on everyone’s agendas, including in the Economic Crime Regime stream: How to build a more effective anti-money laundering regime, and A risk-based approach to beneficial ownership reform.

The cancellation of this week’s planned industrial action on the trains is something of a blessing for tomorrow’s Economic Crime Congress, being as it is held in London. After all, fraudsters never go on strike – the threat is constant, 24/7. If you haven’t done so yet, please do register to attend. Embrace this opportunity, to paraphrase Peter O’Doherty, to share information and intelligence, fully understand the problem and work together on a way forward.

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