The recent Which? super complaint to the Payment Systems Regulator ("PSR") and FCA has put the issue of financial crime firmly under the spotlight - DAC Beachcroft

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The recent Which? super complaint to the Payment Systems Regulator ("PSR") and FCA has put the issue of financial crime firmly under the spotlight

Published On: 3 October 2016

Super complaint

On 26 September Which?, the consumer rights charity, made a so-called super complaint to the PSR and FCA calling for better protection for bank customers who lose money as a result of fraud. Under the existing legal and regulatory framework, customers have no entitlement to seek compensation from banks if they are duped into making bank transfers to fraudsters. Which? has proposed that banks should shoulder more responsibility for losses arising as a result of such transfers, in line with the approach taken towards reimbursing victims who lose out by way of unauthorised withdrawals from accounts or fraudulent credit or debit card payments. The consumer rights group has asked regulators to investigate the scale of bank transfer fraud and to propose new measures to ensure that banks treat victims more fairly, including by reimbursing lost money.

FCA strategy towards banking fraud and financial crime

The super complaint comes in the wake of increased FCA focus on the issue of financial crime. The FCA's most recent Business Plan identified Financial Crime and Anti-Money Laundering as one of the authority's priority concerns. Further, the FCA's Executive Director of Supervision, Megan Butler, recently spoke at the BBA Financial Crime and Sanctions Conference about the regulatory approach to crime and fraud, the importance of banks changing ineffective processes and how cross agency working might benefit the finance industry as a whole.

Ms Butler used her speech to highlight the cost of financial crime, observing that the cost of money laundering globally has been estimated at US$1.6tn. Tackling financial crime is a complex area involving a number of bodies across the governmental, regulatory, law enforcement and banking spheres. The FCA is, Ms Butler stated, committed to taking a proportionate approach to regulation and recognises that banks and other financial services companies perceive the authority as providing inconsistent advice. All firms authorised under FSMA are obliged to take steps to reduce the risk that they might be used for the purposes of financial crime. The FCA is a "supervisor" under the Money Laundering Regulations 2007, meaning that it is responsible for ensuring that authorised firms comply with the Regulations. All such authorised firms are required to apply the same anti-money laundering standards to business outside the EEA as within it.

Ms Butler went on to identify the measures taken by the FCA in relation to the 14 biggest UK, US and European banks, which together account for over 75% of UK retail banking and 75% of UK wholesale banking revenues. These banks are subject to the FCA's Systematic AML Programme ("SMALP") which involves a greater level of scrutiny and assessment into money laundering, anti-bribery and corruption controls.

However, the FCA does not neglect smaller firms, many of which (Ms Butler identified) pose a risk disproportionate to their size. To this end, the FCA conducts a programme of visits aimed at those small firms which have high levels of inherent money laundering risk.

De-risking

Ms Butler used her speech to clarify the FCA's guidance on bribery and corruption. The FCA's supervisors recently investigated inducements in the context of firms selling retail investments or undertaking MiFID business. The findings of that investigation were published earlier this year and identified concerns about practices including corporate hospitality and conflicts of interest, for instance where MiFID firms fail to provide an indication of the value of allowable benefits given to clients, such as training, which would allow the client to assess the possible level of inducement involved. Ms Butler confirmed, in light of concerns raised by the banking and finance industry, that the FCA's standard guidance on bribery and corruption and the Ministry of Justice's guidance on Bribery Act compliance had not been superseded but remained current.

Innovation and joint working

Finally, Ms Butler took the opportunity to highlight the work being undertaken by the FCA to help banks tackle financial crime. The recent ScamSmart campaign was aimed at retired or retiring consumers and gave advice on the steps to take before making an investment. Banks and finance companies were invited to communicate with the FCA in an effort to find a balance between reducing money laundering on the one hand, but without unnecessarily penalising legitimate bank customers on the other.

Conclusion

Financial crime continues to be a hot topic for regulators, and banks and other financial services companies must ensure they continue to afford risk avoidance measures priority. The government's proposed new tax evasion measures, including the new corporate criminal offence of "failure to prevent the criminal facilitation of tax evasion", due in the upcoming Criminal Finance Bill, highlights the importance of effective systems in the current regulatory and legal climate.

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