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“An organisation is only as strong as its weakest link and undoubtedly those wishing to take advantage will quickly identify those gaps,” says Katie Jackson, UK lead for Financial Crime at Deloitte. While the Big Four firm recently unveiled a 10% rise in revenues to £4.9bn for the year ended 31 May 2022, it witnessed a particular increase in demand for its advice on financial crime, or ‘fincrime’.
“Financial institutions struggle to follow illicit activity, and money flows between financial institutions and across geographies due to legacy systems and limited intelligence sharing,” she says. This is reportedly being further exacerbated by digitisation across the industry and the rise of new payments platforms into the market, presenting “fresh opportunities for criminals to exploit” but also new fincrime risks for organisations to monitor and address.
Over the past two years, 64% of UK organisations have experienced fraud, corruption or other fincrime, according to PwC’s Economic Crime Survey 2022. This marks a substantial increase compared to 56% in 2020, and 50% in 2018.
Overall, almost a quarter of UK respondents (24%) estimate their organisations’ loss due to incidents of fraud, corruption or other economic crime over the last 24 months was between $1m (£895,135) and $5m (£4.47m).
“Factors driving the demand for fincrime advice changes over time, but the demand has remained high, particularly post-Brexit,” explains Harry Holdstock, partner in Financial Crime at PwC.
He continues: “Fraud is a major concern, and it’s seen rising rates due to Covid schemes, the cost of living crisis, and the increase in sanction regimes relating to the Russia-Ukraine war.”
Almost two in three UK respondents reported an incident of fraud in the past 24 months, with the top five types of fraud reported being cybercrime, customer fraud, human resources fraud, supply chain fraud, and money laundering and terrorism financing.
“During times of crisis, people begin to rationalise activities and behaviours that they wouldn’t otherwise have done, and I think we should expect to see an increase in fincrime levels,” Holdstock says. Consequently, it begs the question of how accountants and organisations can improve their readiness to address these challenges.
Tackling financial crime
At least one third of UK organisations still don’t have a designated risk management function in place, which is behind the global average, according to the Economic Crime Survey. Additionally, only one third of UK businesses had wider awareness of its responsibilities for responding to fraud risks outside of the risk management/compliance functions.
The greatest risks are posed when organisations interact with other parties, Jackson says. “These parties can expose firms to financial crime risks, whether they are customers, suppliers, vendors, peers, employees, or contractors.” Understanding the nature and complexity of these interactions is “key” in order to appropriately mitigate and manage this risk.
Looking ahead, PwC said the constant evolution of the fraud landscape means that a static model for detecting and preventing fraud “simply cannot keep pace”. While the UK seems to be at the forefront when it comes to suspicious activity monitoring (15% UK vs 13% Global), it is behind the curve on using advanced data analytics (4% UK vs 6% globally).
Jackson says: “Increasing the use of data and analytics, as well as the adoption of innovative technologies such as Digital Identity, have the potential to transform existing processes and enhance the way in which the financial services industry is able to detect and prevent priority threats and drive more effective outcomes.”
She explains that the use of data analytics enables larger volumes of data to be scrutinised at greater speed, so that fincrime teams are able to spot trends and anomalies, and increasing the opportunity to detect and disrupt fincrime threats. “As well as improving outcomes, the use of technology has the potential to help significantly reduce overall costs associated with financial crime compliance,” she says.
Similarly, Holdstock explains that the most important aspect to preventing and detecting fincrime is periodically identifying the risks businesses face, and itemising particular scenarios they could hypothetically be exposed to. He says: “My advice is to do a stocktake on what your risk profile is and put in place processes and controls around those risks.”
This is particularly important as there are businesses who still have legacy processes in place as it’s formed a “habit”. “Organisations have changed and fraud risks have changed,” Holdstock says, and those controls are “taking up valuable resources every day when they aren’t necessarily doing anything anymore.”
“Someone will always find a way around it, but your objective is to make it as hard as you possibly can,” he concludes. “The only way you can do that is by focusing on where your business is exposed and covering that gap with the resources you have. After all, the more that happens, the better protected the system will be.”
