FCA Urges Firms to Strengthen Anti-Fraud Systems and Improve Support for Victims

In a recent review, the Financial Conduct Authority (FCA) has underscored the need for financial firms to bolster their anti-fraud systems and enhance their support for victims of fraud. While the review acknowledged instances of commendable practices, it also expressed disappointment with certain firms' treatment of customers who had fallen victim to fraudulent activities.

The first half of 2023 witnessed over 116,000 individuals reporting instances of Authorised Push Payment (APP) fraud, where victims are deceived into transferring funds to a fraudster posing as a legitimate payee, according to the UK Finance 2023 Half Year Fraud Update. As the economic landscape continues to pose challenges to individuals' financial stability and as fraud tactics become more sophisticated, the FCA emphasized the vital need for firms to continuously evaluate their approaches and establish robust frameworks for fraud detection. Equally important is the provision of effective support to victims when such incidents occur.

Key findings from the FCA's review included the following:

1. Strengthening Fraud Detection Systems: Firms were encouraged to enhance their systems designed to detect and prevent fraud. The review emphasized the need for a stronger focus on fraud prevention.
2. Improving Consumer Outcomes: Many firms fell short in delivering positive consumer outcomes, indicating a lack of emphasis on this critical aspect in their operations.
3. Enhancing Support for Victims: The review highlighted the need for improved support offered to victims of fraud. Some firms were found wanting in this area.
4. Complaint Handling: The FCA observed deficiencies in complaint handling, including delays in responses to customer complaints. Decision letters provided to customers were occasionally unclear, confusing, or contained unhelpful and, at times, accusatory language.
5. Vulnerability Consideration: Firms were urged to consider the characteristics of customer vulnerability more comprehensively when making decisions related to fraud claims and complaints.

The FCA is already collaborating with firms involved in the review to strengthen their approaches to address these issues. It expects all payment service providers to use the findings to inform strategies aimed at detecting, managing, and reducing fraud and associated losses more effectively. The treatment of customers, including the handling of complaints, should be elevated to ensure consistently positive consumer outcomes, aligning with the principles of the Consumer Duty.

Furthermore, the FCA encouraged firms to consider insights from the recently published report titled "Proceeds of Fraud – Detecting and Preventing Money Mules," which reviewed the systems and controls of payment account providers concerning money mule accounts.

Fighting financial crime remains a core priority within the FCA's strategic agenda. The regulator employs a range of tools to combat this challenge, including robust gateway procedures, proactive supervision and enforcement actions, and direct communication with consumers through the ScamSmart campaign. The campaign serves to educate and alert consumers to the potential risks associated with fraud.

In summary, the FCA's review serves as a call to action for financial institutions to enhance their anti-fraud measures and prioritize the well-being of customers affected by fraudulent activities, thereby ensuring a safer and more secure financial environment for all.

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