FCA review finds weaknesses in challenger banks’ financial crime controls

A recent review conducted by the Financial Conduct Authority (FCA) has found that some challenger banks have significant weaknesses within their financial crime controls and need to improve how they assess financial crime risk.

The review, which was conducted during 2021, has revealed that, in some instances, challenger banks did not have financial crime risk assessments in place for their customers. It also identifies a rise in the number of Suspicious Activity Reports reported by challenger banks, in turn raising concerns about the adequacy of these banks’ checks when taking on new customers.

The review focused on challenger banks that were relatively new to the market and offered a quick and easy application process. This included six challenger retail banks, which primarily consist of digital banks, and covered over eight million customers.

The review did find some evidence of good practice, for example when it comes to the innovative use of technology to identify and verify customers at speed.

Financial crime controls need to be ramped up

Cyber crime on the rise

Sridhar Iyengar, managing director at Zoho Europe, commented: “Today, cyber crime and fraudulent activity is rapidly on the rise with more sophisticated episodes taking place all over the world. It’s no surprise that challenger banks are being impacted, but being able to verify customers at speed is no use if suspicious activity is being missed. As it stands, money launderers are still able to evade detection by capitalising on the shortfalls within a banks’ technological infrastructure.”

Iyengar continued: “There are many new features that can help make systems more secure or raise red flags early. Companies including banks can now benefit from the likes of Artificial Intelligence-based systems to help identify potential fraudulent activities. Immediate action can be taken and customers will remain sheltered from risk.”

Further, Iyengar stated: “In highly competitive markets such as banking, having modern IT systems in place can make a real difference in terms of providing business value and positively impact customer trust and the customer experience as a whole. For market challengers, this is even more important.”

The growing cyber risk, coupled with the growth of hybrid working, which can potentially add further security risks, makes it imperative for all businesses to assess their current IT systems.

Iyengar concluded: “Keeping operations secure, efficient and compliant with regulations is a different endeavour to what it was just a few years ago, and demands that all organisations modernise their IT systems such that the latter are fit for purpose in the post-COVID business landscape.”

Three-year strategy

Sarah Pritchard, executive director for markets at the FCA, said: “Our three-year strategy highlights our commitment to reducing and preventing financial crime. This is important in terms of creating confidence for consumers and market participants in financial services and in demonstrating that the UK is a safe place in which to do business.”

Pritchard concluded: “Challenger banks are an important part of the UK’s retail banking offer. However, there cannot be a trade-off between quick and easy account opening and robust financial crime controls. Challenger banks should consider the findings of this review and continue to enhance their own financial crime systems in order to prevent harm being done by criminals.”

Financial Conduct Authority launches ‘Scamsmart’ campaign to combat investment fraud

The Financial Conduct Authority (FCA) has launched a national campaign entitled ‘Scamsmart’ which is designed to warn of the dangers concerning investment fraud and how potential scams might be spotted.

A massive £1.2 billion is lost to investment fraud in the UK every year, with the victims of this criminality losing £20,000 each on average. The fraudsters use a number of tactics to entice their victims into investing in products which don’t exist (for example land-banking schemes, carbon credits and rare earth metals).

The FCA believes that those most at risk of investment fraud are people in retirement who are actively seeking to find a good return on their savings. One consumer told the FCA that he was called out of the blue by a firm that offered to buy the shares he held in a company. The deal sounded legitimate and the website looked professional. It wasn’t until the individual concerned was asked to pay a £5,000 bond to enable the deal to go through that they became suspicious.

Investment scams generally involve high-pressured selling using boiler room tactics for products which often don’t exist (including land-banking schemes, carbon credits and rare earth metals)

Martin Wheatley, CEO of the FCA, commented: “Those operating investment scams use very sophisticated techniques to build trust and can dupe even experienced investors out of their savings. With large numbers of people at risk, it’s important to know how to spot the signs of a potential scam. We would caution against anyone taking a risk on a firm or individual who isn’t authorised by the FCA. Our message is simple: don’t accept a cold call.”

City of London Police Commander Steve Head, who is also the Police National Co-ordinator for Economic Crime, added: “For many years now, tackling investment fraud has been a major priority for the City of London Police. It’s a crime that hits older people hardest, with the victims losing money they’ve worked hard to save their whole lives and often destroys retirement plans.”

Head continued: “The City of London Police is fully supportive of the FCA’s campaign and backs its call for people to always hang up on cold callers. If anyone does fall victim to an investment fraud, it’s vital they report the matter to Action Fraud in order to give law enforcement the best chance of tracking down those responsible and dismantling their criminal operations”.

Key signs of a potential investment fraud

There are several key signs that an investment fraud might be in play. These are as follows:

*You are contacted unexpectedly about an investment opportunity through a cold call, e-mail or a follow-up call after receiving a promotional brochure out of the blue
*You’re pressured to invest in a time-limited offer (or example a bonus or discount is promised if you invest before a set date)
*The risks to your money are downplayed (for example you’re told that you will own assets you can sell yourself if the investment doesn’t work as expected or legal jargon is used to suggest the investment is very safe)
*The returns sound too good to be true (ie better interest rates are stated than those offered elsewhere)
*You are called repeatedly and kept on the phone for a long time
*You’re told that the offer is only available for a limited time or to a limited group of people

For further information visit the FCA’s Scamsmart website

Innovative security fencing set for debut at 2014 Conservative Party Conference

The annual Conservative Party Conference runs at the ICC in Birmingham from Sunday 28 September through until Wednesday 1 October. Having supplied temporary high security fencing to the main political parties’ annual autumn conferences for a number of years now, Zaun has developed a special version of its multi-award winning Rapid Deployable System (RDS) to assist with security for this event which is expected to attract up to 14,000 delegates.

The new RDS Lite employs recycled plastic blocks for anchoring the fence line in favour of the massive concrete blocks that help to give its parent RDS system a PAS 68 rating. Zaun stacks ten 15 kg recycled plastic blocks in a 2×5 configuration into two purpose-built 15 kg brackets held together by four long tubular pins. This arrangement anchors each fence post.

The configuration means that blocks can be carried up and down stairways and even on to canal footpaths, which would have been impossible with the 750 kg concrete blocks that are placed into position by a forklift truck for RDS.

Testing RDS Lite for stability under mob attack at Zaun’s headquarters in Wolverhampton

The innovation follows a direct request from the Centre for the Protection of National Infrastructure (CPNI) to develop temporary crowd perimeter protection that can be carried by hand and deployed in places that forklift trucks cannot access and where structural restrictions on weight loading exist.

RDS is estimated to save up to 90% of police time. This is why the Home Office has thus far bought 5,500 metres of the solution – including access portals, turnstiles and gates – to add to the National Barrier Asset.

Mob testing in the West Midlands

RDS Lite was mob-tested last month at Zaun’s West Midlands headquarters. The test day was attended by CPNI representatives. The system will now be trialled on canal footpaths in Birmingham for the 2014 Conservative Party Conference.

Zaun will also supply two special CCTV bases for the conference – one with a narrow view camera and the other with a wide view model – to try and reduce still further the number of officers needed to police events of this nature.

Alastair Henman – Zaun’s founder and director – said: “RDS was already unique in providing hostile vehicle mitigation up to 30 mph in a rapidly-deployed temporary fencing solution with no below ground foundations. We integrated advanced electronics and top end CCTV as an add-on to existing security arrangements to help better cover specific strategic positions on the perimeter. This latest version of our celebrated RDS literally lifts temporary high security perimeter protection to new heights.”

Back in the autumn of 2012, Zaun installed its RDS for the first time at party political conferences, in turn garnering police accolades and capturing the Security Innovation Award for 2013.

A year later, Zaun incorporated the latest Video Content Analysis system using high performance PTZ cameras into RDS and pioneered the remote policing initiative when the Conservative Party Conference delegates arrived in Manchester.

The innovative RDS Lite recycled plastic blocks

Temporary, PAS 68 and permanent fencing solutions

With regional offices in France and Dubai, Zaun boasts an extensive range of temporary, PAS 68 and permanent fencing solutions as well as expertise in integrating CCTV and perimeter intrusion detection (PID) systems.

Zaun was founded in 1996 by directors Alastair Henman and Paul Painter and remains a privately-owned company, manufacturing in the UK at its state-of-the-art production facility in the West Midlands. The company manufactures to ISO 9001:2008 standards and is a member of the Sedex ethical supply chain initiative.

Importantly, Zaun is also a member of the Perimeter Security Suppliers’ Association, the Fencing Contractors’ Association and the Sports and Play Construction Association.

Financial Conduct Authority forges ahead of SFO with bribery prosecutions

The newly-formed Financial Conduct Authority (FCA) has stolen a march on the UK’s lead bribery prosecutor the Serious Fraud Office (SFO) in its prosecution of bribery and corruption, EY’s latest Bribery Digest has found.

The digest, which tracks bribery prosecutions in the UK, found that the Serious Fraud Office has not completed a case since July 2012.

In contrast, the FCA’s announcement of a £1.8 million fine in December against an insurance and brokering firm has seen the agency forge ahead with a focus on cracking down on bribery, despite being in existence in its current form for less than a year and juggling competing priorities.

Local police forces and Scotland’s Crown and Procurator Fiscal Service picked up the remaining three cases in this period.

Cost of bribery and corruption

The absence of cases from the UK’s lead prosecutor comes despite findings in a report last month that bribery and corruption costs the EU economy £99 billion on an annual basis, while 64% in the UK believe corruption is common.

The newly formed Financial Conduct Authority has stolen a march on the UK’s lead bribery prosecutor the Serious Fraud Office in its prosecution of bribery and corruption, EY’s latest Bribery Digest has found

The EU report also called for a bigger crackdown on UK firms bribing their way into contracts abroad.

Jonathan Middup, EY UK’s head of anti-bribery and corruption, said: “Not only is there a wealth of evidence that bribery and corruption around the world is continuing, but organisations are increasingly attuned to uncovering and reporting their suspicions. The pipeline of cases for the SFO is ever-growing.”

Middup continued: “However, the major prosecution in the past 18 months has come not under the Bribery Act, but the entirely unheralded Principle 3 of the FCA’s Principles for Business. It states that firms must take reasonable care to control their affairs with adequate risk management, in effect leaving FCA regulated firms far more exposed than other companies subject only to the Bribery Act.”

In conclusion, Middup commented: “In its first case, the FCA has made clear that any failures will be severely punished where a company has checks in place to manage risks, but does not use them effectively. This is a major wake up call to financial firms regulated by the FCA that tick box compliance will not be tolerated and that bribery and corruption is on their radar.”