The post Due Diligence Demands: Banks Under Increased Compliance Pressure first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>A recent Complyport article mentioned the National Audit Office (NAO)’s estimate that Bounce Back Loans (BBLs) worth £4.9 billion were fraudulent. This was the alleged result of outdated and ineffective legal requirements as well as the failure of the government to implement adequate fraud prevention measures in a timely manner—namely at the point that these loans were granted.
Moreover, it appears that the criminal actors were able to sharpen the tools at their disposal to commit fraud more efficiently and effectively than the lending organisations and government. Amidst the pandemic, it seems that these fraudsters identified the vulnerabilities and weaknesses of the loan scheme and exploited them in a speedier fashion than the regulated and government markets. Is there a lesson in efficiency here?
To date, £63 million has been paid out to banks that have suffered losses from fraudulent loans during the BBL scheme. However, the money given out could be wrested back. According to Patrick Magee, Chief Commercial Officer of The British Business Bank, the sums could be retrieved if the banks are found to have applied sub-par checks, including instances where they relied on self-certification by borrowers. This may translate in the loss of a substantial governmental crutch for these banks: lenders found not to have applied the appropriate due diligence checks on their borrowers will have to bear the burden of those loans granted to fraudsters.
It is worth noting that £240 million in claims by banks or lenders regarding losses incurred as a result of fraudulent Covid loans have already been dropped. This can also be viewed as £240 million worth of errors and inadequate regulation being admitted and recognised by banking institutions and lenders. The number is expected to rise as a further £5.7 billion is estimated to have been lost from fraud and error within the furlough and self-employment programmes.
The Treasury has announced plans for the creation of a Public Sector Fraud Authority (PSFA) to supplement and reinforce the Taxpayer Protection Taskforce launched in March 2021. Staffed by “an elite fraud squad” of data experts and economic crime investigators tasked with recovering public funds, the PSFA will attempt to settle discontent and answer government critics. One of the critics, Shadow Chancellor Rachel Reeves, emphasised that ignoring warnings regarding the lack of anti-fraud measures in government support schemes resulted in £11.8 billion of taxpayer money handed over to fraudsters and criminals.
The proposed plan will cost £25 million, in addition to the £100 million that the 2021 taskforce cost, and will aim to crack down on criminal fraudsters who have taken taxpayer money. The authority will also be in charge of monitoring suspicious activity and entities trying to gain access to government contracts, and will review existing programmes to try to detect any vulnerabilities to fraud.
The PSFA and the way it is presented as the grand solution to the problem of fraudulent Covid loans, should be taken with a grain of salt. There is definitely a need to recover money taken by fraudsters and criminal actors, but it must be recognised that this is a reactive position; the proverbial horse has already bolted. There needs to be a concentrated effort to act and implement appropriate counter-fraud measures to prevent this type of orchestrated criminal activity occurring again—not just at this grand scale but at any level where a criminal actor will seek to take advantage of the vulnerable or innocent to make a personal gain for themselves.
Several questions emerge the more we examine details surrounding the PFSA. Firstly, the PFSA’s budget of £25 million can be equated to only 5% of the National Crime Agency (NCA)’s. If the NCA, with the much greater budget (and admittedly much wider scope of control and activity), has been unable to effectively manage and mitigate the risks associated with fraudulent loans, it begs the question of how effective the PFSA can be—or how effective we can reasonably expect them to be. Secondly, should the PSFA be effective in recovering public funds, prosecutors like the Serious Fraud Office have not received any additional funding to help recover funds under their investigation. This means that the backlog of approximately 50,000 Crown Court cases will remain a great obstacle for “the system” to process and overcome. Finally, the initial responsibility of distributing Covid loans sat with the Treasury itself. As the PSFA will report to the Chancellor, is it therefore likely that the PFSA will look, or at least look closely and publicly report, as to the actual root cause of the fraudulent losses?
Recovering the money that has been lost will rely on cooperation between national and international authorities to investigate fraudsters based locally and abroad. Moreover, discussions on increasing the resources available for the relevant authorities would greatly benefit counter-fraud efforts.
We must also remember that the overall costs to the public purse are ever-increasing: it covered the administration of the loan in the first place, then the losses to fraud, and will now cover the cost of recovering those losses. Regulating the distribution of loans effectively and appropriately in the first place would have potentially prevented either the majority of the fraudulent loans now sought to be recovered, or a further loss from occurring. If ever there was a case to prove that an investment early on in effective and proportionate controls being the key to incurring costs in remedial and reparative actions later on – this seems to be it.
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:
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.
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.
The post Due Diligence Demands: Banks Under Increased Compliance Pressure first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>The post Mixed Messages: Crypto Developments and Regulatory Caution first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>The UK Government is trying to “ensure the UK financial services sector remains at the cutting edge of technology, [by] attracting investment, jobs and widening consumer choice”. Their promised activities include closer collaboration with the industry, producing an NFT with the Royal Mint, and creating a ‘financial market infrastructure sandbox’ to promote innovation. Current low levels of regulation of the crypto industry did not go unmentioned. Alongside their effort to attract and grow new businesses and innovation, the Treasury acknowledged the need for “financial stability and high regulatory standards so that these new technologies can ultimately be used both reliably and safely.” This was reinforced by Chancellor of the Exchequer Rishi Sunak, who said: “We want to see the businesses of tomorrow – and the jobs they create – here in the UK, and by regulating effectively we can give them the confidence they need to think and invest long-term.”
Other industry figures have been more measured and cautious than the Treasury in their responses to the growth of crypto. At a recent conference, Bank of England governor Andrew Bailey said that “Cryptocurrency is the new front line for scammers”—a sharp contrast to the Treasury’s encouraging tones. This came after the Bank of England’s Financial Policy Committee (which Bailey is a member of) shared their view that “enhanced regulatory and law enforcement frameworks” are necessary to cope with the volatility and rapid growth of cryptoassets and decentralised finance (DeFi), and the risks they pose to the UK’s financial system.
The FCA offers another voice of caution. A recent speech from their Chief Data, Information and Intelligence Officer, Jessica Rusu, highlighted the great importance of digital regulation—especially with the fast-growing pace of innovation and technology within the financial services sector. Her speech also mentioned the FCA’s upcoming CryptoSprint, “engaging with the industry to seek their ideas” so that the FCA can create better-informed policies related to the crypto industry. However, despite the FCA’s pro-digital stance, Rusu stressed the risk that cryptoassets pose to consumers, particularly as FCA research has found that “over 2 million people in the UK are invested in cryptoassets.” Separately, the FCA’s recently-published Strategy for 2022-25 emphasises that it is enforcing increasingly high standards for firms applying for authorisation to operate in the UK. This has already led to one in seven authorisation applications being refused, rejected, or withdrawn, up from one in thirteen. These developments have created an intriguing and possibly challenging landscape for cryptoasset firms looking to register and grow in the UK market.
The contrasting views of the UK’s supervisory bodies seem to have focused the attention of unregulated crypto firms, who have been appointing figures with high-profile regulatory backgrounds. One such firm is Binance, the largest cryptocurrency exchange in the world: it recently appointed former FCA official Steven McWhirter as its Global Director of Regulatory Policy. This is not the first acquisition of a high-level ex-regulatory official by a crypto-asset provider—the Bank of England’s fintech chief Varun Paul, former FCA official Matthias Bauer-Langgartner, and ex-UK chancellor Philip Hammond have all joined forces with different cryptocurrency firms. It appears that, however welcoming a market the Treasury wants to create, firms sense looming new regulations and high barriers to entry and are readying themselves accordingly.
The core issue with cryptoassets is that they carry a certain level of mystery due to a rapid rise in popularity that has not been paired with general consumer awareness and confidence. The following high-level risks can be associated to the world of cryptoassets:
Given the risks posed by the crypto market, and the Chancellor’s call to grow this market in the UK, regulating cryptoasset providers will become ever more important. Cryptoassets will likely move even higher on the regulator’s agenda in light of the FCA’s principles for business and 2022 – 2025 Strategy. The Strategy outlines various goals grouped into the following three categories which may directly affect the growing crypto industry:
Following the Chancellor’s announcement, we can all expect to see and hear much more news relating to crypto firms and cryptoasset providers. Firms will be particularly interested in and watchful for the actions and reactions of the government and regulatory bodies— especially as they may well clash over the extent of regulation that they want imposed on crypto asset providers. It is clear that the FCA will not make it easy for firms looking to establish themselves in the UK market, but despite the Treasury agreeing with the need for robust regulation, the two bodies are not aligned in their messages to firms. Currently, the doors to the UK market are being held open by one body while the other holds a “no entry” sign.
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.
The post Mixed Messages: Crypto Developments and Regulatory Caution first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>The post Brexit: FCA Survey for EEA inbound passported firms first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>| Of relevance to: | All firms solely regulated by the FCA that passport into the UK (either via a branch or on a cross-border services basis) or market funds in the UK |
| Key date: | Survey closes on 11 May 2018 |
The Financial Conduct Authority (“FCA”), via a specific webpage entitled ‘Survey for EEA inbound passported firms’, is asking all firms it solely regulates that passport into the UK (either via a branch or on a cross-border services basis) or market funds in the UK to complete a short online survey.
The UK will become a ‘third country’ (being a country that is not a member of the remaining European Union (“EU27”)) on 30 March 2019 (“the withdrawal date”), unless a ratified withdrawal agreement establishes another date.
In December 2017, the UK Government announced that, if necessary, it will legislate to provide a temporary permission scheme for EEA firms and funds passporting into the UK, allowing them, while seeking full authorisation in the UK, to enter into new business and fulfil existing contracts with UK customers for a period of time after the withdrawal date.
The FCA set out in December 2017 initial details of how it intends to use this scheme.
Subject to HM Treasury’s legislation setting up the temporary permission scheme, the FCA’s expectation is that firms and funds solo-regulated in the UK by the FCA would need to notify them before the withdrawal date of their desire to benefit from the regime.
The FCA anticipate this notification will be a relatively simple process and that a system to enable firms and funds to do this will be set up ahead of the withdrawal date. Notification will not require the submission of an application for authorisation in the UK prior to the withdrawal date. In due course, the FCA will set out further details on these proposals and how the scheme will operate.
To help inform these communications and to identify firms for which a temporary permission may be relevant, the FCA are asking relevant firms and fund managers to complete a short online survey. The information will also help contribute to the overall design of the scheme as well as enabling the FCA to communicate directly with interested firms about the scheme and authorisation process.
The Prudential Regulation Authority (“PRA”) previously set out its own proposals. Firms which would be authorised by the PRA should contact the PRA to discuss its proposals.
The post Brexit: FCA Survey for EEA inbound passported firms first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>The post Money Laundering: New Watchdog for Professional Bodies first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>HM Treasury has announced the creation of a new money laundering watchdog that will tackle potential weaknesses in the money laundering supervisory system that criminals and terrorists may be trying to exploit.
The new money laundering watchdog will be known as the Office for Professional Body Anti-Money Laundering Supervision (“OPBAS”). The announcement was made the same day as the publication of the Money Laundering and Transfer of Funds (Information on the Payer) Regulations 2017 (see “Money Laundering: Politically Exposed Persons” article in this Regulatory Roundup).
The Treasury announcement informs us that of the organisations that are responsible for supervising money laundering risk/terrorist financing risk – including the FCA, HMRC and the Gambling Commission – 22 of these organisations are accountancy and legal services providers’ professional bodies. The creation of OPBAS will ensure consistent high standards across the regime, whilst imposing the minimum possible burden on legitimate business.
We are advised that OPBAS will be housed in the FCA, being funded by a new fee on professional body supervisors. It is expected to be operational by the start of 2018.
The post Money Laundering: New Watchdog for Professional Bodies first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>The post Advising on Investments – Change in Definition first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>One of the recommendations in the joint FCA and HM Treasury Financial Advice Market Review (“FAMR”) was to consider amending the definition of regulated advice so that it is line with the MiFID definition of ‘investment advice’ (as in ‘a personal recommendation’) – see Regulatory Roundup 74. One anticipated outcome of this will be that firms will be willing to provide more advanced guidance services to clients without having to concern themselves about whether they are undertaking the activity of ‘advising on investments’ (current UK equivalent).
A Consultation Response released by the Treasury that confirms that the UK will go ahead with the change in definition.
Interestingly the proposal is that the change in definition will only apply to regulated firms. The government will retain the wider definition for unregulated firms (see the diagram on page 5 of the Response paper).
For regulated firms the definition of ‘investment advice’ will be:
For unregulated firms the definition of ‘advising on investments’ is (summary of Article 53 of the Regulated Activities Order) advice which:
The amendment means that most regulated firms will not need to have the activity ‘advising on investments’ on their Part 4A permission unless they are providing a ‘personal recommendation’.
The FCA has published an explanatory note on its website. There is no need for firms to take any action now pending publication of a FCA Consultation Paper which is scheduled for “later in 2017”. It also includes a short table summarising the impact of the change on different types of firm.
The intention is that the new definition of ‘investment advice’ will come into effect on 3 January 2018 i.e. ‘MiFID II day’. The FCA will be consulting on the proposal.
The post Advising on Investments – Change in Definition first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>