Fraudster Paradise: Closing the Gaps in Counter-Fraud Legislation

Fraud-related losses of £1.9bn were reported to Action Fraud, the UK reporting centre for fraud and cybercrime, between November 2020 and December 2021. These recently released findings follow increasing reports of online fraud, and a call from Baroness Morgan, chair of the Lords Committee on the Fraud Act 2006 and Digital Fraud, to “turn the tide on Britain’s rampant fraud problem”. However, current legal instruments are not fit to effectively prosecute fraudsters or protect vulnerable victims.

Fraud Risks and Threats

Fraudsters employ a wide range of scams and schemes to acquire the information required to perform fraud. These schemes include:

  • Unauthorised payment card fraud
  • Remote banking fraud
  • Investment scams
  • Impersonation scams
  • Pension scams
  • Purchase scams
  • Advance fee fraud
  • Romance scams
  • Invoice and mandate scams
  • Phishing, vishing, and smishing

Whilst this list is not exhaustive, it is clear that fraudsters have an almost endless stream of options through which to target victims. This is not left unexploited by malevolent individuals, who rejoice in today’s digitalised society. According to Action Fraud, a stunning 80% of reported fraud is cyber-enabled, with fraud and cybercrime activities representing over half of all crime.

Regulating Fraud

Regulating the internet or even providing safety measures in the rapidly growing digital realm is, currently, looking like an insurmountable hurdle. More so, these efforts have been hindered significantly ever since the COVID-19 pandemic forced individuals in the UK to move greater portions of their everyday lives online. Truthfully, it appears that this assimilation into digital life is a process that will not go away. Consequently, the need to implement safeguards to guard against fraud—which accounts for 42% of crime against individuals and prevent the associated losses of over £2 billion a year—should be on the top of the government agenda.

The significance of this is magnified when the conclusions of the Bounce Back Loan Scheme (BBLS) report is considered. In their latest update in December 2021, the National Audit Office (NAO) estimate that 11% of the BBLs worth £4.9 billion were fraudulent. Gareth Davies, head of the NAO, was critical of the government handling of the scheme and pointed out that the impact of failing to put adequate fraud prevention measures in place will become clear over time. Additionally, his comments specify the government’s need to improve on identifying, quantifying, and recovering fraudulent loans within the scheme. The sheer scale of possible fraud has even forced the Department for Business, Energy and Industrial Strategy to allocate their limited resources to prioritise the pursuit of organised crime.

Outdated and Ineffective

The relevant legal tools intended to keep fraud in check are the Fraud Act 2006 and Digital Fraud and the Computer Misuse Act 1990. These provisions have been drafted so long ago that when the Fraud Act 2006 received Royal Assent, Facebook had only just opened up to anyone under 13 years of age and Snapchat or Instagram did not exist, never mind Bitcoin and crypto currencies. On the other hand, the fact that the Computer Misuse Act predates Google by eight years speaks for itself. Clearly, the legislative provisions that govern cyber offences and  hold fraudsters to account need to be amended to meet the digital standards and risks of today.

Looking forward

To update legislation and tackle these alarming trends in online fraud, the House of Lords has now launched an inquiry into the Fraud Act 2006 and Digital Fraud. This inquiry will aim to explore how the business model of the modern fraudsters operations can be disrupted without putting the growth of the UK’s tech sector at risk. Current and draft legislation will be examined and recommendations will be made to update these provisions where needed to adequately address the range of tools in a fraudster’s arsenal. Getting the balance right between supporting tech growth and ensuring that tech companies are accountable for the harms facilitated via their platforms is important to protect victims from financial and emotional harm, the economy as a whole and the UK’s reputation.

Anti-Financial Crime Support – How can Complyport Help?

Our experienced Financial Crime and Forensics team led by Martin Schofield—one of the world’s leading specialists in the field—brings a wealth of experience to every project we are engaged in. Our highly experienced financial crime professionals and forensic experts, in subjects such as anti-money laundering, counter terrorist financing, anti-bribery and corruption and fraud and regularly help our clients navigate the complexities of the financial crime and money laundering environment. Services offered by Complyport include:

  • Financial crime health checks and audits,
  • Implementation of financial crime, AML, CTF, ABC, Fraud and market abuse controls and frameworks,
  • Ongoing advice on financial crime, AML, CTF, market abuse and fraud prevention,
  • Authoring/reviewing financial crime policies,
  • Outsourced MLRO support
  • Outsourced KYC and CDD support,
  • Assistance in identifying Politically Exposed Persons (PEPs),
  • Assistance in navigating international sanctions,
  • Support with preventing market abuse and insider dealing,
  • Expert Witness in Financial Crime cases
  • Forensics and Investigations
  • Design and/or delivery of online or face to face financial crime training

If this article has raised any questions, or you think your firm may require assistance, please contact either Martin Schofield via martin.schofield@complyport.co.uk or Jan Hagen via jan.hagen@complyport.co.uk to book in a free consultation.

About Complyport

Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.

Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.

We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.

Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.

Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Our clients tell us we live our values; we are driven, agile and collaborative.

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