Taking a tough stance on fraud

The FSA has adopted a co-operative approach to help the industry tackle fraud and places responsibility on a firm\'s senior management to implement safety checks, says Ben Stafford

Scanning through the finer details of the Financial Services Authority’s criminal activity or enforcement initiatives always brings to mind a certain 1970s sitcom starring Ronnie Barker. However, on closer inspection, Open All Hours it isn’t, I am pleased to say.

The FSA’s most recent announcements on enforcement and financial crime focus on assisting (rather than incarcerating) mortgage brokers, and doing so in the area of fraud prevention in particular. The industry is still adjusting to regulation so few are likely to have noticed this, but the consequences will be felt by firms even if the initial announcement was not.

Speaking at a fraud and money laundering conference last week, FSA financial crime sector leader Philip Robinson outlined the regulator’s ‘Fighting fraud in partnership’ initiative and how it plans to work with the industry on this problem. Estimates for the cost of fraud are as much as £11bn in the financial sector, and with fraudulent activities ranging from international money laundering to employee theft within an individual firm, there is a considerable amount of work to do and it is right that the FSA has adopted a co-operative approach.

If you are surprised that the FSA even has a financial crime sector leader, you might have overlooked one of the less talked about aspects of its work. As a non-statutory regulator, managing sector-wide initiatives for tackling financial crime was never a realistic ambition for the Mortgage Code – but this is not the case for the FSA. Focussing on money laundering, fraud and dishonesty, as well as criminal market misconduct such as insider dealing, the FSA forms a major part of the broader effort to crack down on financial crime.

As with every other aspect of the new regime, the FSA’s approach will place responsibility for implementing fraud safety checks with a firm’s senior management. And these individuals will be charged with considering fraud as part of their systems and controls obligations.
While many will groan at the thought of more potential compliance work, steps taken should reduce the fraud risks and consequent cost that firms face individually. The FSA claims that during a recent market survey on insurance claim fraud for example, small and medium-sized participant firms revealed a saving of almost £4 for every £1 spent on fraud prevention.

The initiative does not take the prescribed form of a new Handbook section or MCOB chapter. Firms are instead urged to address some of the ‘weak areas’ already identified by the FSA in risk prevention. The FSA is concerned that fraud prevention does not figure highly enough in senior managers’ lists of priorities, and that staff might not be trained to recognise potential or actual acts of fraud. Another suggested gap is the tendency for fraudulent activity to be reported to senior managers on a reactive, rather than ongoing, basis in many firms. The FSA is intent that all such points are addressed.

AMI will be working with members and the FSA to make sure this takes place in a workable and effective manner. However, in the meantime, members can access the latest AMI factsheet Fraud Prevention at www.a-m-i.org.uk/closed/cug/publications.asp

I should know but I don’t know

Q: I’m still not sure about the FSA’s transitional rules for stationery. Whereabouts is this covered?

A:M There is no room for uncertainty – or delay for that matter – in implementing the FSA’s rules. This should be clear by now. If you’re struggling with the details of the requirements and where to find them, the FSA has issued a useful clarification of disclosure (and use of its logo) at www.fsa.gov.uk/mgi/faqs_fsa_logo.html

In terms of the FSA Handbook, the actual rules appear in chapter 4.3 of the General Provisions block of the FSA Handbook www.fsa.gov.uk/vhb/html/GEN/GEN4.3.html.

To recap, firms can continue to use stationery which includes MCCB or GISC details until July 15 2005. The FSA has allowed a transition period so that firms can run down existing stationery supplies.

It has also allowed mortgage brokers who conduct GI business to hold off printing new stationery until general insurance regulation takes effect on January 14.