I’ve written at length about the Consumer Duty over the past couple of years, with thoughts to help advisers meet their obligations under the rules.
I’ve also highlighted that firms should never lose sight of the big picture; that the Consumer Duty was introduced to raise standards right across the industry, and the importance of protecting clients from harm.
Since the rules were put in place just over six months ago, the FCA has already sent out a series of ‘Dear CEO’ letters to the sectors where it has concerns about these standards not being met.
In the most recent and frank ‘Dear CEO’ letter to wealth managers, the regulator makes it clear it sees poor financial crime controls as a key potential harm to consumers. The letter goes on to list its expectations, with firms having: ‘robust and effective systems and controls to counter financial crime’.
As a platform provider and partner to adviser firms, we continue to see risk of financial harm to consumers, particularly in the areas of identity theft, bank account takeover, and attempts to remove the adviser role, as I described in an earlier blog.
In advance of any ‘Dear CEO’ letter to advisers, it would be worthwhile for firms to review the robustness and effectiveness of their anti-fraud controls to demonstrate the value of their service to both clients and to the FCA.
The Online Safety Act and the rise of AI-powered tools
Fraud makes up 40% of recorded crime in the UK and, in addition to the regulator, it’s a key focus for the government as its recently published anti economic crime plan and anti-fraud strategy indicate.
In its latest report on the scale of financial crime, UK Finance laid out some more sobering facts:
- The UK lost £580m to fraud In the first half of 2023.
- Of this, £43.5m was stolen through police or bank staff impersonations and a further £6.9m was lost to impersonations of chief executives.
- In the UK, more than three-quarters of fraud starts online, mostly on social media, which means younger people are generally targeted.
- Purchase scams, where consumers order and pay for items online that never arrive, are among the fastest growing types of fraud, with younger people more likely to fall victim.
- Authorised Push Payment (APP) fraud, where scammers trick victims into sending them money, is also on the rise, with cases jumping by a fifth in the first half of 2023.
A major survey carried out last year by Interactive Investor backs up these findings as it reveals that 15% of respondents aged 40 or under, have lost money through scams over the past three years which may reflect youngster’s greater use of social media.
Although the government’s Online Safety Act, which is currently in consultation, includes requirements for tech companies to spot and remove content on their platforms that enables fraud, it won’t be fully implemented until the end of 2025.
One other threat to consumers is the rise of AI-powered translation tools. As has been widely covered in the media, sophisticated scammers are able to take advantage of the technology and ‘replicate’ voices. Banks are already being hit by such scams, according to fraud prevention body Cifas, with fraudsters typically using ‘synthesised’, online videos to open bank accounts or apply for credit cards.
And recent joint research by Stop Scams UK and PwC, Impact of AI on Fraud and Scams underlines the role of AI in both preventing and enabling scams, and reports, as an example, ‘deepfake’ videos are being used as ‘clickbait’ to drive traffic to malicious websites to harvest card payment.
Demonstrating the value of advice and protecting clients
Although AI has provided fraudsters with powerful new technology and the implications are serious, one of the core drivers that enables scams remains – the idea that you or I would never fall for a scam. However, any one of us could be a victim of financial crime, especially with scams evolving and the ongoing cost-of-living pressures. Fraudsters also target people’s emotions which means that the vulnerable may be most at risk too.
As I’ve previously highlighted, because of the nature of the relationship, more than any other sector, advisers are in the best position to protect their clients from harm.
Providing clients with peace of mind that their assets are being looked after, and that suitable fraud controls are in place is probably the most valuable part of an adviser’s service.
Our 10-point anti-fraud checklist for adviser firms
To help your business review and establish robust and effective systems and controls to counter financial crime, and to help meet the standards expected by the regulator, use our checklist below as a guide:
- Make clients aware of the risk of scams and alert them to the ongoing risk of fraud; forward this FCA web page which contains more detailed guidance.
Compile and review your own list of organisations fighting fraud, and pass the web links to clients. This could include Take Five (national campaign with advice on how to stop fraud), Stop Scams UK (industry-led collaboration), Get Safe Online (advice on how to avoid being scammed online) and Action Fraud, which has a list of all types of financial scams.
- When validating clients’ account details electronically, although useful, it won’t show if the real client isn’t in control of the account. If you’re not regularly interacting face-to-face with clients, we’d recommend a confirmation call with them.
- 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, check all communications from abrdn, as we may be contacting you about potential fraudulent activity.
- Bring your clients’ attention to the rise in AI-powered voice-cloning technology and to the potential of being scammed over the phone into sending money to someone they believe is a family member.
- Make clients aware of the prevalence of ‘phishing’ scams and to be wary of clicking on any online ads, especially if they’re offering deals. Also, if they’re expecting a parcel delivery, it’s easier for clients to fall for scam emails and texts about missed parcels with fraudulent links to ‘track package’.
- Your clients can help to protect themselves if they’re contacted by a suspicious email or caller. Tell them to authenticate the caller as they would expect to be authenticated by their bank, e.g. ask the suspicious caller something they should know.
Our checklist offers just some suggestions to help ensure good anti-fraud controls are in place in adviser firms.
With the Consumer Duty here, it’s important firms continually evaluate their approach to ensure they have robust frameworks in place to detect fraud, so I’d encourage advisers to keep monitoring the web pages given above.
Most importantly, such steps demonstrate the true value of advice and the adviser’s special relationship with their clients.
abrdn Wrap and abrdn Elevate are committed to tackling the risk of fraudulent activity to help protect both adviser firms and their clients. Our platform due diligence guides for Wrap and for Elevate outline the security controls and practices we have in place to help combat financial crime.
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 advice.