Fraud: FCA highlights disappointing failings by firms
The FCA has published the outcome of its review into anti-fraud controls and complaint handling at firms. It selected a sample of 12 firms, which included challenger banks and payment firms, and performed a high-level evaluation of their frameworks, with a focus on authorised push payment (APP) fraud.
The FCA’s review comes shortly after the PSR’s APP fraud performance report, which was based on 2022 data and showed for the first time how firms at an individual level were dealing with APP fraud. Notably it highlighted the inconsistent outcomes customers face due to the varying approaches across firms.
While the FCA’s review of anti-fraud controls and complaint handling found examples of effective frameworks, it also identified common weaknesses and material issues, which it at times described as “disappointing”. The detailed findings were broken down across several areas:
Governance, Oversight and Management Information (MI) – The FCA found many firms needed to make improvements in this area. It expressed disappointment that there was a lack of evidence of effective oversight and challenge at senior management and board levels, and it found MI was often focused on commercial risk appetite and financials.
Fraud systems and controls – The FCA stated most firms could make material improvements to strengthen their systems and controls. It also found instances of anti-fraud frameworks that were still being developed and were yet to be embedded. However, it did also highlight measures it had observed as useful and effective (when deployed appropriately), including automated warning messages and manual intervention of payments that requires a customer to interact with a member of staff.
Use of intelligence – The FCA found firms to be engaged in intelligence sharing and horizon scanning, but noted that it was aware of PSPs being slow to act on intelligence and freeze the proceeds of fraud they receive.
Customer treatment & awareness – The FCA found firms had a lack of clear information to enable a customer to report fraud and inappropriately resourced teams which affect the speed and quality of investigations. It highlighted the impact this has on customers in reducing the ability to prevent fraud and recover funds, as well as the impact when their accounts have been frozen due to fraud concerns.
Approach to customer complaints – This was another area where the FCA expressed disappointment. It found firms were slow to respond to complaints and failed to give timely updates. It also found firms issued final response letters that were of a poor quality, including due to the use of technical language and unclear rationale for their decisions.
Treatment of customers in vulnerable circumstances – The FCA found it was often unclear how firms evidenced their consideration of vulnerability when making decisions about fraud claims and complaints.
What should firms be doing?
Both the FCA and PSR have reiterated their priority to tackle APP fraud and it will continue to be a key area of focus for them.
Firms should be using the FCA’s findings as part of their own reviews into their anti-fraud and customer complaint frameworks. The FCA warned it expects firms which identify gaps to take appropriate remedial action.
Firms should also have regard to detecting and preventing mule accounts due to their use in receiving and otherwise laundering the proceeds of fraud. The FCA specifically referred to their separate findings in this area that were published in October. If firms have not done so already, they should similarly be reviewing their approach against these findings and taking appropriate actions to resolve deficiencies – we created a helpful gap analysis to get you started.
Firm should consider what steps they can take now to enable them to comply with the PSR’s mandatory reimbursement requirements coming into force in 2024. This was another action the FCA specifically highlighted.
Firms should assure themselves that their approach also complies with the Consumer Duty. Again, the FCA specifically highlighted such action and the need for customers who are the victims of fraud to receive good outcomes.
We have expertise across anti-fraud and customer complaints, as well as financial crime and the Consumer Duty more broadly. If there’s anything you want to discuss or need assistance with then get in touch.
