Cases of fraud are on the rise. Alastair Black, Head of Industry Change, explains how advisers are well placed to protect their clients and gives some practical suggestions around actions to take.
The figure is sobering.  

According to findings recently published by trade body UK Finance, more than £600 million was lost to fraud during the first six months of this year. Its conclusion is as sobering: “the UK faces an epidemic of fraud”.

Financial crime rose rapidly during the pandemic. Now, the cost of living crisis is providing a fresh hook for scammers with the current economic stresses triggering a new wave of financial crime.
As just one example, fraudsters are taking advantage of the rising costs of energy to scam consumers. The number of frauds naming one of the big energy companies was up 10 per cent in the first quarter of 2022, compared with the same period last year, findings from Which? and Action Fraud reveal. An increased risk of harm to consumers   As a platform provider, we’re seeing an increased risk to consumers of financial harm, particularly in the following three areas:
  • Identity theft: This is a common type of scam, when a fraudster impersonates someone to gain access to assets. Cases of identity theft are increasing across the industry with customer funds being targeted. Scammers take data from multiple sources, including intercepting postal mail, to build up enough information to open bank accounts and start the process of attempting to obtain client monies. 
  • Bank account takeover: When scammers are successful at identity fraud, they can gain control of consumers’ bank accounts through, for example, an email account in order to get access to long-term savings.
  • Attempts to remove the adviser role: This type of fraud is on the increase. Fraudsters attempt to remove the adviser and deal directly with providers in an attempt to bypass the additional level of security an adviser provides – having an adviser in place is one of the best means of preventing fraud.

For our part, we’re committed to tackling this increased risk  in fraudulent activity to help protect both adviser firms and their clients. Our platform due diligence guides here and here outline the security controls and practices we have in place to help combat financial crime.

Protecting clients’ assets is a valuable service as part of an adviser’s proposition 

The impact of being a victim of financial crime, especially on vulnerable customers,  can mean not only the potential loss of life savings, but long-term emotional trauma too. 

Protecting clients is at the heart of advice. More than any other type of financial services firm, advisers are in the best position to provide consumers with protection from financial harm.

It’s also good practice to have layers of protection to prevent consumers becoming victims of fraud. When a consumer uses an adviser, the scammer has to get through both the adviser firm’s controls and the controls of the provider. It means the advised have the potential to benefit more from protection against harm than the non-advised.

This protection will be further strengthened with the FCA’s Consumer Duty rules. The regulation will require advisers to support their clients by preventing ‘foreseeable harm’ through recognising a change in the economic climate and economic behaviours that may lead to an increased risk of financial crime.

The Consumer Duty’s Consumer Support outcome will require firms to protect clients from acting in a way that’s detrimental to their best interests. It includes a requirement to provide clients, especially those approaching retirement, with more awareness of scams. This is one of the most valuable parts of a firm’s service to its clients and as such, should be articulated to clients as a key part of the proposition.

It’s also  where advisers can demonstrate to the regulator that they’re complying with the spirit of the Consumer Duty by communicating the increased risk of scams to clients and by recalibrating their firm’s financial crime controls.

Review your firm’s controls and checklists to protect your clients and your business

There are simple steps your firm can take such as putting an anti-fraud checklist into the advice process which will not only help to protect your clients, but will help to protect your business too. We’d recommend the following:

  • Get in touch with each of your clients to alert them to the increased risk of fraud and include this link to the FCA website. The page covers different types of scams with some helpful links to more detailed information and guidance. Ask clients to take a look at the information as it will increase their awareness of fraud and help to protect them from financial crime.
  • Collate your own list of useful web links of organisations fighting fraud to pass to clients to increase their awareness. This could include Take Five, a national campaign offering advice on how to stop fraud, Stop Scams UK, an industry-led collaboration whose members include lenders, telecoms companies and tech firms and Get Safe Online, with advice on how to avoid being scammed online.
  • When validating clients’ account details, electronic checks can be a useful tool. However, they won’t show that the real client isn’t in control of the account. We’d recommend a confirmation call with your client if you’re not interacting face-to-face regularly with them. This is a key advantage adviser firms with personal client relationships have.
  • Be sure that transaction requests from your clients (such as withdrawal requests or changes in personal details, such as bank details) are valid and in line with what you’d expect from them. Again, we’d recommend a quick confirmation call with your client if there’s any doubt.
  • Banks are active in informing customers when there’s a concern that they’re at risk of identity theft. It can be easy to dismiss these alerts as a scam, but for clarification, we’d encourage your clients who receive such an alert to contact their bank directly via a known number or secure messaging service.
  • If you're communicating via email with a client, always double check that any documents clients send you via email are verified with them through another source.
  • As you, the adviser, are a key control for us where fraudsters are attempting to remove the adviser role, please always check all communications from us, as we may be contacting you about potential fraudulent activity.

A drive to tackle the UK’s financial crime epidemic

Despite all the government’s distractions this year, there’s still a commitment to tackle the financial crime epidemic in the UK.

Its Economic Crime and Corporate Transparency Bill is currently going through Parliament and would increase the powers of the Serious Fraud Office while the proposals in the Online Safety Bill, also going through Parliament, would introduce advertising guidelines for platforms such as Facebook to help prevent scammers targeting consumers this way.

We’d urge you to review your controls and processes to help protect your clients, especially those who are most vulnerable to this type of crime.

Take a look at the full range of practical support we have on our website to help you meet your obligations under the Consumer Duty rules

The value of investments can go down as well as up and your clients could get back less than they paid in.

The views expressed in this blog should not be regarded as financial