Select committee inquiry
Economic Crime inquiry
Closed
What the inquiry looked at
“Report: Economic Crime - Anti-money laundering supervision and sanctions implementation Report: Economic Crime - Anti-money laundering supervision and sanctions implementations (PDF 995KB) Government response (PDF 236KB) This inquiry will have two strands: one looking at the anti-money laundering and sanctions regime, and one considering economic crime as it affects consumers. The anti-money laundering, counter-terrorist financing and sanctions regimes The Committee would welcome evidence on: The scale of money laundering, terrorist financing and sanctions violations in the UK, and the means by which this activity is enabled The current legislative and regulatory landscape, including any weaknesses in the rules and their enforcement The effectiveness of the Treasury and its associated bodies in supporting and supervising the regimes The impact of the implementation of the current regimes on individuals, firms and the wider economy, including unintended consequences, such as the removal/refusal of financial services from/to individuals or firms The role of financial institutions and/or professional bodies in these regimes The UK’s role in international efforts to tackle money laundering and terrorist financing and implement sanctions Consumers and economic crime In relation to economic crime as it affects consumers, e.g. consumer fraud, the Committee would welcome evidence on: The current legislative and regulatory landscape, including any weaknesses The scale and nature of economic crime faced by consumers, including emerging trends The response of the Treasury and its associated bodies to economic crime consumers face Consumer education, responsibility and vulnerability in relation to economic crime The role and effectiveness of financial institutions in combatting economic crime that consumers face The potential for technology and innovation to assist those committing and combatting economic crime The security of consumers’ data”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of 3rd Report - Economic Crime: Consumer View ↗
This report is the second we have published on economic crime in the UK. Our first inquiry—Economic Crime - Anti-money laundering supervision and sanctions implementation—was focused on money laundering, terrorist financing and sanctions in the UK as well as the regulatory and legislative landscape. This inquiry has focused on the scale of economic crime faced by consumers, ways that financial firms are combating economic crime, how economic crime is investigated, and consumer’s rights and responsibilities.
In the first half of 2019 over £600 million was stolen from consumers by fraudsters. It is a serious problem, with scams getting ever more sophisticated, from so-called “romance fraud” to posing as a consumer’s internet provider. Authorised push payment (APP) in which a consumer is conned into processing a payment to an account controlled by a criminal is a new and growing problem.
In the first half of 2019, the industry prevented £820 million of unauthorised fraud.
One key area of prevention, due to begin implementation soon, is Confirmation of Payee. To date fraudsters have relied on the account name not being matched to convince consumers to transfer money. This continued despite banks knowing this was a weakness in the system. The new system will match actual account names with those provided by consumers and flag any differences. While it will not solve economic crime alone, it is part of the solution. Further delays to implementation should not be allowed, and the regulators should look to use statutory powers if financial firms are not ready by the March 2020 deadline.
Fraudsters often use high pressure tactics to convince consumers to transfer money, which do not allow a consumer time to consider if they are being defrauded. We recommend that all initial payments between accounts are subject to a 24-hour delay.
There have been positive technological developments which allow financial firms to track fraudulent transactions across the banking system. However, legislation lags behind, making recovery of these funds difficult. The Government should review recovery of stolen funds legislation to ensure it is fit for purpose. The FCA should set tight deadlines for financial firms to block accounts receiving stolen funds once suspicious activity has been identified.
The Contingent Reimbursement Model, which came into effect in May 2019, provides financial firms with a clear framework under which they should reimburse. We understand that the Code’s voluntary basis allowed it to be introduced quickly. However it should now be made compulsory.
Whether or not a consumer is reimbursed also comes down to whether they are deemed to be ‘grossly negligent’. The lack of definition of this term has led to inconsistencies across the sector and we recommend the regulators define this promptly. The regulators should require financial firms to provide consumers with clear guidance on what they expect of their customers in light of that definition.
What the government said
3rd Report - Economic Crime: Consumer View
No government response is linked to this report.
28th Report: Economic Crime - Anti-money laundering supervision and sanctions implementation
No government response is linked to this report.
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 28 March 2018 to its close on 1 November 2019.
- Oral evidence 11 sessions
- Report 2 reports
- Correspondence 6 letters
What it recommended 33 recommendations · 39 conclusions
1The scale of economic crime in the UK is very uncertain.
Concluded (the committee's words)
The scale of economic crime in the UK is very uncertain. It seems that it can reasonably be said to run into the tens of billions of pounds, and probably the hundreds of billions. We note that those who gave evidence regarded it as being small in comparison to the total amount of financial activity in the UK, and especially the City of London—for example the daily value of foreign-exchange trading in the UK at around £1.8 trillion. Such a comparison provides no comfort to the Committee. Rather, it suggests that upper bound of the estimate is unknown, and almost unconstrained.
2It is exceptionally difficult to measure economic crime, given those undertaking it are actively trying...
Concluded (the committee's words)
It is exceptionally difficult to measure economic crime, given those undertaking it are actively trying to hide it. The Committee does not doubt the will of the authorities to combat economic crime. However, it considers there to be merit in attempting to measure its extent, since greater understanding of the scale of the problem will allow those responding to provide sufficient resources to tackle it, and potentially highlight where those resources should be targeted. The Committee therefore recommends that the Government undertakes more analysis to try and provide both more precision on the potential estimate of the size and scale of economic-related crime in the UK, as well as the exposure of different sectors to it.
3The UK holds a prime position in global financial services, with the City of London...
Recommended (the committee's words)
The UK holds a prime position in global financial services, with the City of London a dominant financial centre. Given Brexit challenges, the UK will work to keep it that way. A ‘clean’ City is important, so the Government must recognise the responsibility to combat economic crime that comes with that position. Recent moves by the Government in this area are welcome, but must be sustained, and match the UK’s ambitions to continue to be a global leader in financial services.
4The UK’s departure from the European Union will inevitably result in a change in international...
Recommended (the committee's words)
The UK’s departure from the European Union will inevitably result in a change in international trading relationships. Such new trading relationships may also provide opportunities to those wishing to undertake economic crime in countries that are more vulnerable to corruption. The UK must remain alert to that risk, including when it conducts trade negotiations. The Government must be consistently clear about its intention to lead in the fight against economic crime, and not compromise that in an effort to swiftly secure new trading relationships.
5We recommend that the Government retains, or replicates, the arrangements with the EU to maintain...
Recommended (the committee's words)
We recommend that the Government retains, or replicates, the arrangements with the EU to maintain the flow of information to UK law enforcement agencies on economic crime. We recommend that the Government work to develop strong relationships with other countries and strengthen mutual information sharing and law enforcement powers.
6The Committee may consider taking further evidence on the findings of the Financial Action Task...
Concluded (the committee's words)
The Committee may consider taking further evidence on the findings of the Financial Action Task Force (FATF) mutual evaluation in due course. The Committee does, however, note the zeal with which the Government has considered reform in this Economic Crime - Anti-money laundering supervision and sanctions implementation 71 area as the FATF mutual evaluation has approached. With mutual evaluations occurring only on a 10-year cycle, the UK should not solely rely on prompting by FATF to ensure its economic crime prevention, detection and enforcement systems remain fit for purpose and it should not rely on FATF alone to identify areas where improvement is needed. The Committee therefore recommends the Government institutes a more frequent system of public review of the UK’s AML supervision, and law enforcement, that will ensure a constant stimulus to improvement and reform. This review should take a holistic view of the entire system, rather than be undertaken by each individual component supervisor or agency. There may be a role for the recently announced Economic Crime Strategic Board in this work.
7The property sector poses a risk from an anti-money laundering perspective.
Recommended (the committee's words)
The property sector poses a risk from an anti-money laundering perspective. Yet the AML supervisory regime around property transactions is complicated. Banks are supervised by the Financial Conduct Authority, solicitors by their relevant professional body, and estate agents by HMRC. While there may be debate over which part of the transaction chain bears most responsibility from an AML perspective, each part has a role in reporting, or preventing, a transaction that may be used for money laundering. There is a risk that some estate agents may be unsupervised, having not registered with HMRC. We recommend that HMRC carries out further work to ensure estate agents are registered with them and following best anti-money laundering practice.
8There is a clearly identified risk that company formation may be used in money laundering.
Concluded (the committee's words)
There is a clearly identified risk that company formation may be used in money laundering. There are a number of entities that undertake company formation, and therefore a number of supervisors. More worryingly, there appears to be a number of unsupervised entities engaged in company formation. These should be identified by HMRC and dealt with as a matter of urgency.
9There must be no weak areas in the UK’s systems for preventing economic crime.
Recommended (the committee's words)
There must be no weak areas in the UK’s systems for preventing economic crime. At present, Companies House presents such a weakness. The UK cannot extol the virtue of a public register of beneficial ownership and yet not carry out the necessary rigorous checks of the information on that register. The Government must urgently consider reform of Companies House to ensure it has the statutory duties and powers to ensure it plays no role in helping those undertaking economic crime, whether here or abroad. It is welcome that the Economic Secretary has noted that BEIS is considering reform in this area, but the Government should move quickly and now publish detail of this reform by summer 2019.
10Though the emphasis has been on the risk presented by enablers, such as accountants or...
Concluded (the committee's words)
Though the emphasis has been on the risk presented by enablers, such as accountants or solicitors, there should also be a sharp focus on the supervision of the core financial services. To the extent that this risk is not ameliorated by supervision, the FCA needs to ensure that they keep up a constant pressure on the core financial services businesses and take appropriate enforcement action against them.
11The evidence we have received has directed our attention to those who act on the...
Concluded (the committee's words)
The evidence we have received has directed our attention to those who act on the periphery of the financial system, rather than its core, the so-called enablers or facilitators. External witnesses suggested that there is a requirement for education 72 Economic Crime - Anti-money laundering supervision and sanctions implementation as well as enforcement—the Security Minister pointed towards the responsibility of the enablers to play their part. It is welcome that in its Serious and Organised Crime Strategy, the Government has acknowledged a similar focus. The Committee recommends that the Government steps up education of facilitators, to ensure they have all information about their role, recouping any additional costs through fees. Once this has been completed, it should be followed with an enforcement campaign to ensure compliance.
12The Committee supports the role that The Office of Professional Body Anti-Money Laundering Supervision (OPBAS)...
Concluded (the committee's words)
The Committee supports the role that The Office of Professional Body Anti-Money Laundering Supervision (OPBAS) has been given in relation to the Professional Body Anti-Money Laundering Supervisors. The inherent conflict in a membership organisation also monitoring its own members means that there is a need for external supervision. The number of such supervisors also shows there is a need for a single organisation to look at the system as a whole, and identify weaknesses across the piece. We consider the concerns around whether the statutory AML supervisors also need such a coordinating body later in this Report.
13At present, OPBAS also has the responsibility of recommending to the Treasury whether a professional...
Recommended (the committee's words)
At present, OPBAS also has the responsibility of recommending to the Treasury whether a professional body should remain an AML supervisor. It is not clear how the Treasury would consider such an OPBAS recommendation, and where it would envisage placing such AML supervisory responsibilities in such a case. Without adequate preparation in this area, AML supervisors may become too important to fail, and therefore risk undermining standards in this area. We recommend that the Treasury publishes—within six months—a detailed consideration of how it would respond to such a recommendation from OPBAS.
14In evidence to this Committee, the Chief Executive Officer of HMRC noted that he was...
Concluded (the committee's words)
In evidence to this Committee, the Chief Executive Officer of HMRC noted that he was considering, as part of the 2019 Spending Round, querying whether HMRC should retain its role in Anti-Money Laundering supervision. The Committee agrees that this should be given proper consideration, not only to support HMRC concentrating on its core tasks but also to address concerns expressed to the Committee about HMRC’s work as an AML supervisor, and whether its approach to its supervisory responsibilities may be unduly influenced by its role as a tax authority. The Treasury must send the Committee a report on this consideration well ahead of the Spending Review.
15Notwithstanding the above recommendation, the Committee has heard a number of concerns around the work...
Concluded (the committee's words)
Notwithstanding the above recommendation, the Committee has heard a number of concerns around the work of HMRC as an AML supervisor, including around its work on unregistered firms. If it is to retain its AML supervisory responsibilities, HMRC should: (Paragraph 107) • include within its departmental objectives a single stand-alone objective related to its anti-money laundering supervisory work; and • keep a clear reporting line between its AML supervisory work and its work investigating tax crime and associated money laundering offences. HMRC should have a separate strategy for its AML supervisory work which would include key performance indicators on which HMRC can report.
16With the creation of OPBAS, the Government acknowledged that consistency across AML supervisors was important.
Concluded (the committee's words)
With the creation of OPBAS, the Government acknowledged that consistency across AML supervisors was important. The Committee recommends that it should go one Economic Crime - Anti-money laundering supervision and sanctions implementation 73 stage further, by creating a supervisor of supervisors. The aim of this institution would be to ensure that there is consistency of supervision across all the AML supervisors, whether statutory or professional body. There is a strong case for this to be OPBAS, given it already has a role in the coordination of the professional body AML supervisors, and a role in information sharing.
17The Government should then also consider moving the supervisory responsibilities of HMRC to OPBAS.
Recommended (the committee's words)
The Government should then also consider moving the supervisory responsibilities of HMRC to OPBAS. This would reduce fragmentation in the current supervisory landscape and allow HMRC to focus on its tax authority responsibilities. It would also mean that OPBAS could act as supervisor of last resort in the case of a failure of a professional body supervisor. The close relationship between OPBAS and the FCA, a fellow supervisor, would also be beneficial.
18OPBAS should be placed on a firmer statutory footing, more akin to the Financial Ombudsman...
Concluded (the committee's words)
OPBAS should be placed on a firmer statutory footing, more akin to the Financial Ombudsman Service, in having its own distinct identity protected under primary legislation.
19The resources to combat economic crime available to the private sector dwarf those currently available...
Concluded (the committee's words)
The resources to combat economic crime available to the private sector dwarf those currently available to the public sector. The private sector support to the public sector, provided either through direct payments or through undertaking tasks one might expect Government to undertake on AML, is therefore welcome.
20One significant issue is the maintenance of expertise in the public sector to undertake this...
Concluded (the committee's words)
One significant issue is the maintenance of expertise in the public sector to undertake this work, considering the salaries available in the private sector. The Government and public sector bodies should consider whether there is the pay flexibility available to ensure that the appropriate skills are maintained.
21The Committee is also concerned that the Government may have not allocated enough resource to...
Concluded (the committee's words)
The Committee is also concerned that the Government may have not allocated enough resource to effectively marshal the private sector resources to achieve a ‘hostile environment’. The Economic Secretary confirmed that there is no cross- government assessment of public resources being brought to bear in this area. The Committee recommends that such an assessment is made, and that any potential funding shortfalls are rectified.
22There has been great emphasis on the need for information sharing in combatting economic crime.
Recommended (the committee's words)
There has been great emphasis on the need for information sharing in combatting economic crime. Such information should be shared both within sectors, and between sectors. Banks have asked for additional powers to share information between each other. Such a move would require significant consideration of the privacy impact on consumers of financial services. At the very least, there should be a number of safeguards to protect both consumers’ information, and to ensure that as a consequence of such information sharing no consumers unfairly lose their access to financial services. We recommend that the Government reviews the scope to increase information flows at the bank level and report back to this Committee within six months.
23The Government has placed a lot of emphasis on the benefits the National Economic Crime...
Concluded (the committee's words)
The Government has placed a lot of emphasis on the benefits the National Economic Crime Centre will bring. It is welcome that a single centre will provide an element of leadership to this complex web of interacting agencies and firms. The Committee 74 Economic Crime - Anti-money laundering supervision and sanctions implementation will continue to monitor the impact of NECC, and recommend that annual updates of the measures of success of the NECC are published or provided to the Committee.
24Suspicious Activity Reports (SARs) are one way in which the authorities can receive intelligence from...
Recommended (the committee's words)
Suspicious Activity Reports (SARs) are one way in which the authorities can receive intelligence from the private sector. The SARs reform programme is therefore an exceptionally important piece of work for the AML regime. The Committee’s evidence suggests that reform should focus on increasing the number of SARs reports by those outside the core of the financial system, the so-called enablers. We have heard a number of reasons why SARs may not be submitted by the enablers. It is a legal requirement for SARs to be submitted, so the system needs to be as robust and simple to use as possible. Thought should also be given, in a world of faster payments, to how NCA requested delays to payments can be better handled. Confidence in the SARs system, at present, appears to be weak outside the core financial service. In its response to this Report, the Government should set out how it will increase confidence in the SARs regime.
25We also heard evidence that quality, rather than the quantity of SARs, should be encouraged.
Concluded (the committee's words)
We also heard evidence that quality, rather than the quantity of SARs, should be encouraged. While an increase in quality is always desirable, modern data analytics means that quantity may also be useful. The review will have to be careful not to stifle SARs that in and of themselves may seem of low quality, but when analysed in the round may provide far more useful information.
26The Politically Exposed Persons regime is an important part of the system for preventing money...
Recommended (the committee's words)
The Politically Exposed Persons regime is an important part of the system for preventing money laundering. We have heard that defining PEPs remains difficult for institutions, both large and small. While commercial solutions are available, they may be beyond the resources of very small companies. We recommend that the Government creates a centralised database of PEPs for the use of those registered by AML supervisors.
27Derisking, where financial institutions cease customer relationships with certain ‘high risk’ customers, can have a...
Recommended (the committee's words)
Derisking, where financial institutions cease customer relationships with certain ‘high risk’ customers, can have a significant impact on both individuals and businesses. As we have seen, it can also potentially move illicit flows underground. While there has seemingly been much effort, progress in tackling derisking has been achingly slow. We recommend that the Government publishes its strategy on how to address disproportionate derisking strategies within six months. That strategy must include how it will take the conclusions of the G20 taskforce forward.
28The Government’s proposals on reforming the law on corporate liability around economic crime have stalled.
Recommended (the committee's words)
The Government’s proposals on reforming the law on corporate liability around economic crime have stalled. Though the Solicitor General realises the importance of this issue, preparations for Brexit seem, in part, to have waylaid this important work. Despite Brexit, the Government must progress domestic priorities must not be forestalled any longer by Brexit. Without reform in this area, multi-national firms appear beyond the scope of legislation designed to counter economic crime. That is manifestly unfair, and weakens the deterrent effect a more stringent corporate liability regime may bring.
29There is clear evidence that legislative reform is required to strengthen the hand of law...
Recommended (the committee's words)
There is clear evidence that legislative reform is required to strengthen the hand of law enforcement in the fight against economic crime. We recommend that the Government sets out a timetable for bringing forward legislation to improve the enforcement of corporate liability for economic crime. The Serious Fraud Office’s suggested reforms should be considered as part of those proposals.
30The Solicitor General emphasised the importance of getting the detail of new legislation right.
Concluded (the committee's words)
The Solicitor General emphasised the importance of getting the detail of new legislation right. The consultation process can help with that task and need not be delayed until proposed legislation is in near final form.
31We recommend that the Government responds to the evidence submitted in response to the 2017...
Recommended (the committee's words)
We recommend that the Government responds to the evidence submitted in response to the 2017 Corporate liability for economic crime: call for evidence and undertake further consultation on proposals for legislation by the next Queen’s speech.
32The Office of Financial Sanctions Implementation (OFSI) has only been in existence for a year...
Recommended (the committee's words)
The Office of Financial Sanctions Implementation (OFSI) has only been in existence for a year and a half. It has a number of potential sanctions breaches under investigation. While all breaches will have to be investigated thoroughly, and treated on their own merits, public examples of enforcement will be necessary if OFSI is to be recognised as an effective deterrent. It is necessary for the Government to review the effectiveness of OFSI. We recommend that two years after its formation marks the time for such a review to take place.
33The EN+ listing occurred due to a weakness in sanctions policy, not implementation.
Concluded (the committee's words)
The EN+ listing occurred due to a weakness in sanctions policy, not implementation. The evidence heard by the Committee suggests that while the proposed listing was carefully analysed given its sensitivities, the narrowness of the sanctions regime meant that the listing could not be blocked.
34In the face of this seeming failure of the sanctions regime, the Economic Secretary has...
Concluded (the committee's words)
In the face of this seeming failure of the sanctions regime, the Economic Secretary has suggested that there should be a power for the Government to block a listing on National Security grounds. On the face of it, this would create a new focussed power outside the sanctions regime. If the Committee is to be persuaded that such a power is necessary and appropriate, the Government needs to set out very clearly when such a power would be used, what effect it might have on UK listings and financial services, and most importantly, why it would be needed, especially when sanctions are in the full control of the UK post-Brexit. We would expect full, wide and timely consultation on such a power to inform its scope and design.
35There has been, without doubt, a malign influence on the UK financial system from certain...
Concluded (the committee's words)
There has been, without doubt, a malign influence on the UK financial system from certain elements of Russian money. This fact has been acknowledged by both financial services and law enforcement. However, as noted by the FCA, illicit Russian money does not need to use novel or unique ways to enter the UK. The UK must achieve a balance between focussing on financial flows from one country, while not distorting the AML system, and creating a risk that other criminals slip by while attention is focussed on individuals with a specific nationality.
36The United Kingdom’s departure from the European Union could allow additional flexibility in its use...
Recommended (the committee's words)
The United Kingdom’s departure from the European Union could allow additional flexibility in its use of sanctions. The Government must ensure it is ready to introduce any new powers it believes are necessary as soon as any further flexibility has become available, having consulted appropriately.
1It is clear, both in terms of financial losses and in the variety of scams...
Recommended (the committee's words)
It is clear, both in terms of financial losses and in the variety of scams suffered by consumers, that economic crime is a serious and growing problem in the UK. Trends need to be identified quickly. In order to ensure a clear picture of the scale and types of economic crime facing consumers, the FCA should publish data on economic crime within six months. It should evolve its data collection practices to ensure they allow for emerging trends, while still enabling year-on-year comparisons.
2The Government has not been listening to concerns that data sharing requirements for financial services...
Concluded (the committee's words)
The Government has not been listening to concerns that data sharing requirements for financial services firms are too restrictive and unfit for purpose. We welcome the establishment of the public-private working group. Its remit must include assessing whether the current data sharing requirements are fit for purpose. If not, the working group must make detailed proposals to reform those legal requirements including considering using existing subordinate legislation-making powers under the Data Protection Act 2018 to amplify or clarify exemptions in the Act. The group should report to us every six months on progress made.
3We are concerned over the length of time some accounts used in economic crime remain...
Recommended (the committee's words)
We are concerned over the length of time some accounts used in economic crime remain active once intelligence has been received on their potential misuse. Whilst we understand that prescribed timeframes could delay how quickly banks act, the difference in time each bank takes to act creates weakness in the UK financial system. The FCA should work with financial institutions to ensure consistency across the sector. We recommend that the FCA uses its powers to set a timeframe in which an account must be frozen when evidence has been received by a bank that it is receiving money fraudulently.
4Confirmation of payee will not solve economic crime alone, and as such the onus will...
Concluded (the committee's words)
Confirmation of payee will not solve economic crime alone, and as such the onus will always be on financial firms to develop further methods and technologies to keep up with fraudsters.
5The fact that banks were not previously confirming payees is a serious failure to protect...
Concluded (the committee's words)
The fact that banks were not previously confirming payees is a serious failure to protect customers from harm. Asking for such information but not using it would have created a false sense of security among some customers when sending payments. It might have been better for banks to not ask for this information at all if they were not going to use it for fraud prevention.
6We therefore recommend that Confirmation of Payee should be introduced as a matter of urgency.
Concluded (the committee's words)
We therefore recommend that Confirmation of Payee should be introduced as a matter of urgency. Every delay leaves more people vulnerable to falling victim to economic crime. If the implementation date of March 2020 begins to look in doubt, regulators should consider introducing sanctions, such as fines, to firms who have not met the deadline.
7The arguments put forward that Confirmation of Payee implementation could be harmful for competition if...
Concluded (the committee's words)
The arguments put forward that Confirmation of Payee implementation could be harmful for competition if large firms implemented before small ones, is without 38 Economic Crime: Consumer View merit. Competition in the banking sector exists for the benefit of customers, not for the benefit of firms. Customers should not be put at risk of becoming victims of fraud, in order to protect slow adopting firms from implementing protections for their customers. The Payment Systems Regulator should therefore ensure that all relevant firms can implement Confirmation of Payee by the end of 2020.
8Subtle differences which might not be immediately obvious to many people, such as using ‘soliciters’...
Recommended (the committee's words)
Subtle differences which might not be immediately obvious to many people, such as using ‘soliciters’ rather than ‘solicitors’, could represent a fruitful way for fraudsters to disguise fraudulent accounts as legitimate accounts, and therefore small inaccuracies should be flagged for consumers’ own protection. We recommend that spelling mistakes are flagged within the new Confirmation of Payee System.
9Fraudsters rely on the speed of the payment system to move money into a series...
Concluded (the committee's words)
Fraudsters rely on the speed of the payment system to move money into a series of different accounts before a customer or a customer’s bank are aware that a fraud has taken place. The speed of transactions make it difficult for banks to trace stolen money once a fraud has occurred. Very few first-time payments need to be received instantaneously. Very large payments will often be scheduled days in advance. Therefore, high-speed payments on first time payments could be made redundant with only a limited impact on consumers.
10We recommend a mandatory 24-hour delay on all initial or first-time payments, during which time...
Recommended (the committee's words)
We recommend a mandatory 24-hour delay on all initial or first-time payments, during which time a consumer about to be defrauded could remove themselves from the high-pressure environment in which they are being manipulated. All future payments to that same account could flow at normal speed to minimise inconvenience to customers. If a situation arose whereby an initial payment was needed instantly, a customer could ring their bank and additional checks could be carried out for the funds to be released.
11Financial firms who allow members of the public to open bank accounts should provide information...
Concluded (the committee's words)
Financial firms who allow members of the public to open bank accounts should provide information about what a money mule is, and the penalties for being convicted, at the point of opening. This should take the form of an easy to read factsheet, rather than being buried in the small print of terms and conditions.
12Where groups of people most susceptible to being persuaded to become money mules are identified,...
Concluded (the committee's words)
Where groups of people most susceptible to being persuaded to become money mules are identified, targeted campaigns should be undertaken. For example, banks should fund work with universities, youth organisations, community centres, schools, Further Educational institutions and sixth form colleges to provide students with information, both when they join and at graduation. Targeted campaigns where other emerging trends are identified should also be undertaken.
13We recommend that the FCA should set a challenging timeframe in which an account must...
Recommended (the committee's words)
We recommend that the FCA should set a challenging timeframe in which an account must be frozen when evidence has been received by a bank that it is receiving money fraudulently. We understand the argument made by the FCA that a timeframe may encourage financial firms to work towards the prescribed timeframe, rather than as quickly as possible, but without a deadline, some accounts are remaining open for weeks allowing further fraud to occur unnecessarily.
14When third parties are responsible for data breaches which lead to associated fraud, they should...
Recommended (the committee's words)
When third parties are responsible for data breaches which lead to associated fraud, they should be responsible for the associated costs. The Government should Economic Crime: Consumer View 39 consider making third parties liable for associated costs to financial services firms and encourage the Information Commission to take this account when fining firms under the General Data Protection Regulations.
15In the first instance banks should be as transparent as possible on de-risking to allow...
Concluded (the committee's words)
In the first instance banks should be as transparent as possible on de-risking to allow all individuals and firms the best possible chance of keeping their financial services. This may include providing greater information about why services have been withdrawn. There are examples of good practice on this and the FCA should ensure its rules allow for that to happen.
16The FCA has at times appeared unable to act to prevent de-risking from happening.
Concluded (the committee's words)
The FCA has at times appeared unable to act to prevent de-risking from happening. The improved data gathering from the Financial Crime Report should assist it in its efforts The FCA and Financial Ombudsman Service should ensure that all instances of de-risking where a customer cannot come to resolution with their bank are fully investigated and banking services returned as quickly as possible wherever possible and appropriate. We would expect to see timely and appropriate action taken where instances of blanket de-risking are apparent.
17Banks should only use Artificial Intelligence if they have a high degree of assurance that...
Concluded (the committee's words)
Banks should only use Artificial Intelligence if they have a high degree of assurance that its use will not result in bias. Regulators have a role to play to ensure it is used responsibility and does not pose indiscriminate risks to sections of society.
18The announcement of a national fraud strategy is long overdue.
Recommended (the committee's words)
The announcement of a national fraud strategy is long overdue. It followed the damning criticism of Her Majesty’s Inspectorate of Constabulary and Fire and Rescue Services’ report. It must now be a priority for police forces to make the strategy work. One of the actions from the Economic Crime Plan 2019–22 is that the police response to fraud is improved. The Government should provide us with an update on this action within six-months of publication of this report.
19One of the actions from the Economic Crime Plan 2019–22 is that the police response...
Recommended (the committee's words)
One of the actions from the Economic Crime Plan 2019–22 is that the police response to fraud is improved. The Government should provide us with an update on this action within six-months of publication of this report.
20Complex fraud cases have not always been effectively ‘tasked’ or referred upwards.
Concluded (the committee's words)
Complex fraud cases have not always been effectively ‘tasked’ or referred upwards. At times they are just moved from pillar to post. This is unacceptable for the victims of potentially devastating crimes. It is therefore welcome that this is both a focus of the police, and its inspectorate.
21Improvements to tasking will hopefully relieve some pressure on local forces.
Recommended (the committee's words)
Improvements to tasking will hopefully relieve some pressure on local forces. However, some cases will remain at the local level. The Government must review how it provides support to individual police forces which consider they have complex frauds they could successfully investigate, where resources may otherwise prevent those cases progressing.
22We are pleased to hear that in the main, reports of economic crime from financial...
Concluded (the committee's words)
We are pleased to hear that in the main, reports of economic crime from financial institutions to the police are happening in a timely manner so the police can start an investigation promptly. However, we are concerned that banks do not always appear to be reporting instances to the police where, for example, the bank has 40 Economic Crime: Consumer View reimbursed the victim. Given the high-speed nature of the financial system, any delay in reporting to the police could prevent recovery of funds and allow fraudsters to profit at a victim’s expense.
23The Government should require all frauds to be reported regardless of their size, and whether...
Recommended (the committee's words)
The Government should require all frauds to be reported regardless of their size, and whether or not a financial institution has reimbursed a consumer.
24It is not currently always clear to consumers whether a fraud should be reported to...
Concluded (the committee's words)
It is not currently always clear to consumers whether a fraud should be reported to an individual consumer’s bank, the police or to Action Fraud, nor is it always clear what each entity would do with the information provided. The process for reporting an economic crime needs to be clarified. We welcome the plans to issue guidance to Action Fraud and chief constables to ensure consumers reporting a crime are clearly told both how reported instances of fraud will be used, and also how they won’t be used, when they report a crime.
25The serious criticism of Action Fraud in the ‘Her Majesty’s Inspectorate of Constabulary and Fire...
Recommended (the committee's words)
The serious criticism of Action Fraud in the ‘Her Majesty’s Inspectorate of Constabulary and Fire & Rescue Services’ report and in the media need to be addressed. In its response to this report the Government should set out what it has done to address this issue.
26We welcome the Contingent Reimbursement Model Code—a frame work for financial institutions to use to...
Concluded (the committee's words)
We welcome the Contingent Reimbursement Model Code—a frame work for financial institutions to use to determine when reimbursement should be provided to victims of APP Fraud—as a way to protect consumers We remain unpersuaded that the Code should be voluntary and strongly urge any relevant parties who have not yet signed up to the Code to do so. As the first year review of the Code approaches, the Code should now be made compulsory through legislation.
27We accept that including retrospective reimbursement within the Code would have been a barrier to...
Concluded (the committee's words)
We accept that including retrospective reimbursement within the Code would have been a barrier to financial firms becoming signatories. However, financial firms have been warned since 2016, when Which? made a super complaint, that they have been failing in their duty to protect customers by not linking information on account names to payments. This is still an issue as Confirmation of Payee has not been implemented yet.
28We strongly encourage firms to consider whether refusing to retrospectively reimburse customers who relied on...
Concluded (the committee's words)
We strongly encourage firms to consider whether refusing to retrospectively reimburse customers who relied on the payee name is fair and just. We especially encourage this where the customer would now fall into the Code’s definition of vulnerability.
29We accept that keeping the Practitioner Guide private avoids it becoming a guide to committing...
Recommended (the committee's words)
We accept that keeping the Practitioner Guide private avoids it becoming a guide to committing fraud. However, the current consumer guidance is so high level, it does not give consumers a clear sense of what is expected of them. Without sight of how the Code should work in practice, consumers may be left unable to effectively challenge their bank. This could lead to an increased number of cases being referred to the Financial Ombudsman Service and a delay in any potential reimbursement. We recommend that a more detailed consumers’ guide is produced, which includes practical examples.
30We welcome the FCA’s recent rule changes requiring financial firms receiving payments to ensure that...
Recommended (the committee's words)
We welcome the FCA’s recent rule changes requiring financial firms receiving payments to ensure that they are not inadvertently assisting economic crime. However, we are concerned by the lack of power financial institutions have to recover money sitting in bank accounts once it has been reported as stolen. Given the development of MITS technology, the Government should review the current legislation around recovery of stolen funds to ensure that victims can be reimbursed as quickly as possible, whilst protecting legitimate transactions.
31The existing Payment Services Regulations do not define what actions by a customer would be...
Recommended (the committee's words)
The existing Payment Services Regulations do not define what actions by a customer would be deemed as ‘gross negligence’. As a result, each individual firm can set its own bar of what customer behaviour it would deem to be grossly negligent. This could lead to a lack of consistency between how customers with the same circumstances are treated. We recommend that an accepted definition for gross negligence should be agreed by the regulators. The regulators should require financial firms to produce an easy to read lists of ‘dos and don’ts’ for customers, to show how the individual financial firms would define proper account usage in the majority of circumstances. Such lists would allow for variations between firms.
32Financial firms must ensure that vulnerability is a key factor in determining if a consumer...
Concluded (the committee's words)
Financial firms must ensure that vulnerability is a key factor in determining if a consumer was grossly negligent. The FCA should ensure that the outputs from their recent consultation on the Guidance for Firms on the Fair Treatment of Vulnerable Customers covers any finding of gross negligence.
33If firms do find individual consumers to have been grossly negligent, we recommend their customer...
Recommended (the committee's words)
If firms do find individual consumers to have been grossly negligent, we recommend their customer responses quote the legislation the firms are relying upon to refuse making a reimbursement, alongside an explanation of how this conclusion was reached. Although it may cause distress, we believe that using the phrase ‘grossly negligent’ would provide a very clear explanation to the consumer why their claim is being refused, and on what grounds.
34Education has an important role to play in the wider fight against economic crime.
Concluded (the committee's words)
Education has an important role to play in the wider fight against economic crime. There is always merit in equipping consumers with skills to give them the confidence and knowledge to pause and think about whether or not the situation they have found themselves in could be a fraud.
35We recommend that financial firms should undertake targeted education campaigns where trends have been identified...
Recommended (the committee's words)
We recommend that financial firms should undertake targeted education campaigns where trends have been identified and when new scams appear. These should include information at the point of opening an account about the consequences of being a money mule and information regarding emerging frauds so that consumers can stay vigilant.
36It is important that financial education is not a ‘one time’ exercise.
Recommended (the committee's words)
It is important that financial education is not a ‘one time’ exercise. We recommend that reminders are sent out to consumers in different formats and at different times. This should include online marketing and social media to target messages to younger consumers. This will ensure that firms are not only meeting their obligations of the Contingent Reimbursement Model Code, but also will help prevent fraudsters from succeeding in the first place.
Evidence
Oral evidence sessions 11
- 15 May 2019No witnesses recordedparliament.uk ↗
- 2 Apr 2019No witnesses recordedparliament.uk ↗
- 13 Feb 2019No witnesses recordedparliament.uk ↗
- 8 Jan 2019No witnesses recordedparliament.uk ↗
- 27 Nov 2018No witnesses recordedparliament.uk ↗
- 30 Oct 2018No witnesses recordedparliament.uk ↗
- 10 Oct 2018No witnesses recordedparliament.uk ↗
- 9 Oct 2018No witnesses recordedparliament.uk ↗
- 4 Jul 2018No witnesses recordedparliament.uk ↗
- 19 Jun 2018No witnesses recordedparliament.uk ↗
- 15 May 2018No witnesses recordedparliament.uk ↗
Correspondence 6 letters
- 22 Oct 2019Letter from the Economic Secretary to the Treasury, related to Committee report Economic Crime - 17 October 2019To committee
- 12 Feb 2019Payment Systems Regulator to Chair re Update on APP Scams
- 30 Oct 2018Correspondence from the Director of Specialist Supervision of the Financial Conduct Authority to Chair relating to Staff and Budget, dated 19 October 2018
- 30 Oct 2018Correspondence from the Parliamentary Under-Secretary of State to BEIS to Chair relating to Companies House, 22 October 2018
- 30 Apr 2018Letter from Jon Thompson, Chief Executive HMRC, regarding HMRC's approach to cooperating with international partners, 27 April 2018To committee
- 25 Apr 2018Letter to Jon Thompson, Chief Executive & Permanent Secretary HMRC, regarding Lycamobile, 23 April 2018From committee