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Combat financial crime out of conviction, not just compliance

Crime thrives on disruption. And that’s certainly true of financial crime during the COVID-19 outbreak. The crisis has sparked a surge in fraud and scamming, from phishing emails to bogus charity fundraising. Demonstrating once again how vital it is for banks and the financial system in general to get on top of this social and economic menace. In fact, they should see it as a vital part of resetting for recovery and rallying around a renewed sense of purpose.

In 2018, we showed how the financial industry needed to join forces with the public sector to take the initiative against financial crime. Our report urged more collaboration between firms by sharing transaction and (where appropriate) customer data, and more investment in technology to analyse it in closer to real time. We argued that instead of defensively complying with anti-money laundering regulations, firms, regulators and other agencies could team up to turn the tide against crime.

Now is the time to take up this call with a sense of conviction, and not just to satisfy regulators. A conspicuous move against crime will bolster trust in systems rocked by the crisis. It will reassure people who are – perhaps reluctantly – using digital banking for the first time in lockdown. It will deepen the loyalty of existing customers and attract new ones. It will also reconnect banks and their people with the purpose behind their brands.

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Small steps towards a tougher anti-crime stance

There are signs of movement towards the anti-crime posture we’ve advocated. The UK’s National Economic Crime Centre (NECC) is up and running with the job of co-ordinating the anti-crime effort. The Office for National Statistics estimated there were 3.8m fraud cases in 2019 impacting 8% of the adult population - but only 15% are estimated to be reported to police, and only a tiny percentage therefore leading to prosecution. In other words, fraudsters are largely getting away with it. The figures are an echo of those we quoted two years ago, namely that only 1 percent of financial crime proceeds are ever seized.

The COVID-19 situation adds fresh urgency to a deep-seated problem. Travel and non-essential shopping have been all but shut down, with people largely confined to their homes. So, fraud and money laundering have become the only areas of criminal activity that can still exploit their victims.

A new look for old scams

Criminals have seized the chance to capitalise on disruption and anxiety. Already by early April, more than 500 Coronavirus-related scams had reportedly sprung up. By late April, banks and investment managers were reporting a steep rise in phishing emails and SMS phishing, or ‘smishing’, texts using COVID-19 to give established tactics a new twist. Gmail said it was blocking 18 million phishing emails a day from its users’ inboxes. Scamming ploys included bogus HMRC emails about the government furlough scheme, online quizzes or offers of face masks, hand sanitizer and refunds for cancelled holidays. All these tactics are the pretext to get people to part with sensitive information that criminals can use for identity fraud activity like resetting account passwords.

Of course, this is a reminder of how important banks’ onboarding and transaction monitoring processes are. In May, the FCA had to urge the banks not to let their guard down on suspicious transactions by turning off or changing triggers and thresholds to cut the number of alerts.

Controls under the spotlight

Independent ‘skilled person’ reviews increased in 2018-19, indicating a renewed focus on banks’ controls and processes by regulators. Here, the regulator calls in a third-party reviewer to investigate if they’re concerned about an area of business or compliance with regulations.

No bank wants these reviews, not least because they show the organisation attracting attention for the wrong reasons. They can also lead to further supervisory action, or enforcement. So, the onus is on the banks to tighten up their systems to prevent this sort of scrutiny happening in the first place. It’s also an indicator that it won’t be enough to let the NECC do all the heavy lifting in intensifying the fight against crime.

A chance to strengthen purpose and trust

The COVID-19 situation undoubtedly highlights vulnerabilities to fraud. It also shows it’s up to banks to do all they can to thwart it, not just to comply with regulations and avoid fines but to look after their customers. Fighting against financial crime isn’t just a compliance exercise. It’s the duty of a responsible corporate citizen. 

The crisis has made people feel their vulnerability more keenly. It follows that they’ll be all the more conscious of any efforts to acknowledge and ease that feeling with practical action. So, banks who prioritise their anti-fraud effort over their product promotion activity could be rewarded with lasting loyalty. This crisis is a chance not just to weather the storm but to go demonstrably beyond the call of duty in building trust.

Protecting against fraud can be part of a broad and visible commitment to repairing society, from loaning to small businesses to helping vulnerable customers engage remotely through technology. There’s now more emphasis on speeding up digital transformations to enable a digital experience for customers who were reluctant to engage before. What better opportunity to couple this with enhanced security and demonstrate that digital banking is safe from fraud?

The COVID-19 crisis has brought short-term disruption and is likely to bring long-term economic pain. It’s also a chance for businesses to reset their relationship with their customers and strengthen their trust. For banks, attacking the menace of financial crime is a core part of that effort.

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