Firms Should Strengthen Anti-fraud Systems And Must Treat Victims Of Fraud Better, Review Finds

8th November 2023

From the Financial Conduct Authority.

Firms should strengthen anti-fraud systems and must treat victims of fraud better, review finds.

We are working with payment service providers to do more to protect consumers from fraud, including authorised push payment (APP) fraud.

While our review of firms' fraud controls and complaint handling found examples of good practice, we were also disappointed with the way some firms supported customers who were the victims of fraud.

In the first six months of 2023 over 116,000 people reported falling victim to APP fraud (UK Finance 2023 Half Year Fraud Update), where someone is tricked into sending money to a fraudster posing as a genuine payee. With more people potentially vulnerable due to cost-of-living pressures, and fraud methods evolving, it is critical that firms continually evaluate their approach and have robust frameworks in place to detect fraud, as well as effective support for victims when it happens.

Our review found:

Firms can do more to strengthen their systems designed to detect and prevent fraud.
There is not enough focus on delivering good consumer outcomes in many firms.
Some firms could do more to improve the support they offer to victims of fraud.
Poor complaint handling, including firms often taking too long to respond. Customers were provided with decision letters that were sometimes unclear, confusing, or included unhelpful and, on occasion, accusatory language.
Firms are not fully considering characteristics of customer vulnerability when making decisions about fraud claims and complaints.
We are already working with firms in our review to strengthen their approach. We expect all payment service providers to use our findings to inform what more they can do to detect, manage and reduce fraud and losses more effectively. Customer treatment must also be improved, including how complaints are handled, to deliver consistently good consumer outcomes in line with the Consumer Duty.

Firms should also consider the findings from our recent publication Proceeds of fraud - Detecting and preventing money mules, which reviewed payment account providers' systems and controls against money mules accounts.

Fighting financial crime is a key priority in our strategy and we have a number of tools to tackle it, including; being tough at the gateway, taking assertive supervision and enforcement actions and communicating directly with consumers through our ScamSmart campaign to warn them of the risks of fraud.

Proceeds of fraud - Detecting and preventing money mules
Introduction into money mules
A money mule is someone who is recruited by criminals to move illegally obtained money. Money mules play a crucial role in the process of cashing out the proceeds of fraud.

They are either knowingly involved or unknowingly involved in the fraudulent/money laundering process.

Unknowingly involved money mules are drawn into criminal activities and are unaware of their involvement in illegal transactions. They are often deceived by fraudsters who present seemingly legitimate opportunities or plausible explanations for their actions. These individuals believe they are working for a legitimate company or helping someone in need.

Knowingly involved money mules are fully aware of their participation in illicit activities and help criminals in money laundering or fraudulent schemes. These individuals may be motivated by financial gain, getting out of financial difficulties, or choosing to participate in criminal activities.

Read more at -
https://www.fca.org.uk/publications/multi-firm-reviews/proceeds-fraud-detecting-preventing-money-mules