Tackling scams and fraud during the cost-of-living crisis

Financial crime experts predict criminals will exploit the UK government's cost-of-living schemes that are intended to help vulnerable people. As these customers fall victim to these fraudulent schemes, do we have the means and resources to protect them in time?

While the National Audit Office (NAO) published figures from HMRC reporting a £4.5 billion loss due to error or fraud when COVID-19 support schemes were rolled out, the actual figure could be higher because it is an ongoing estimate. Future schemes have been recommended to HMRC and HM Treasury, but there will be similar exploitation from fraudsters during the current cost-of-living crisis. Although the NAO and Home Office are developing a second Economic Crime Plan, it will be delivered too late to help the most vulnerable during the current difficulties.

There is unlikely to be a slowing down in the rates of new fraud vectors that are being created and the risk of financial crime is always stronger during periods of economic uncertainty. Criminals that exploit the turbulent times in the UK will create invoice scams and tax change fraud for everything from gas and electricity bills to purchases relating to Christmas or next year's holiday.

More work still needs to be done

Despite fraud reduction rates lowering in the UK, it should be recognised that it is perhaps due to fraud levels being particularly high to start with. This still leaves some margin for improvement when compared to the reduction of fraud in mainland Europe after the Payment Services Directive 2 (PSD2) became effective. However, criminal attacks will likely be deflected towards the enrolment and re-enrolment of a user with stronger customer authentication mechanisms in place.

The future for combating fraud can still be hopeful, however. Authorised push payment (APP) fraud, which occurs when a person is tricked into sending money by a fraudster posing as a genuine payee, has recently declined, with losses down 13% in the past six months. This decline is arguably attributable to the success of Confirmation of Payee (CoP), but overall figures and the sums involved are still too high.

Nevertheless, a PSR policy paper released in October 2022 states that CoP hasn't been the silver bullet on APP fraud that they hoped it would be. Although CoP is useful to prevent impersonation fraud, it is unlikely to tackle romance scams (which involve people being duped into sending money to criminals who go to great lengths to gain their trust and convince them that they are in a genuine relationship), or purchase scams. In a purchase scam, someone is tricked into believing they are paying for goods or services which they then never receive. In that instance the name on the account will match the details that are given by the criminal so they would pass CoP checks.

We must adapt to new regulations and technological innovation

The past five years has proved that fraudsters can adapt to new opportunities and threats as they continue to innovate and exploit weaknesses. Behind every scam and fraud is an individual or business who suffers potential material loss and emotional anguish at the crime committed against them. During times of economic hardship, research indicates that financial crime can increase by 75%-100% on current levels.

Now the cost-of-living crisis and an expected recession is imminent, financial institutions must urgently create customer-centric approaches to prevent criminals from exploiting their customers. What CoP has proven is that widescale adoption of modern technology that drives collaboration can have a material impact on financial crime.

As we progress, we need to focus on similar solutions that enable information sharing, the training of models, which can adapt to fraud innovations, and policies that protect customer interests. The most feasible option for protecting the consumer involves making the UK financial environment, where customers send money, as hostile to criminals as possible.

There are several ways this can be achieved. When accounts are opened, a payment is received and when money is removed from the account, checks need to be improved. Additionally, securing the transaction process itself through the screening of inbound and outbound transactions by both the sending and receiving banks. Other solutions could be to smooth the onboarding of new financial crime prevention technology so banks can innovate as fast as the criminals and finally, increased collaboration with more data sharing tools to drive an increase in the level of intelligence and combat fraud threats.

Overall, the financial Industry must invest in financial crime prevention measures immediately as they adapt to new regulations and prioritise their customers when combating fraud and scams. Of course, there is no simple route when it comes to fighting financial crime. It will only be reduced by continuing the concerted efforts of all parties – the government and industry working closely together.

Photo by Gilles Lambert on Unsplash

About the authors

Jane Jee, Nick Fleetwood, Fabien Ignaccolo and Neil Turner are part of The Payment Association’s Project Financial Crime, which delivers community-driven solutions and awareness that addresses the problems posed by digital and financial criminal activity.

• Jane Jee is Company Secretary at Numitor, Director of Jee Associates, and leader of Project Financial Crime at the Payments Association
• Nick Fleetwood is the Head of Data Services at FORM3 Tech and a member of Project Financial Crime
• Fabien Ignaccolo is the CEO of Okay and a member of Project Financial Crime
• ·Neil Turner is the compliance and regulations manager at Mastercard and a member of Project Financial Crime

About The Payments Association

The Payments Association (previously the Emerging Payments Association or EPA) is a community for all companies in payments, whatever their size, capability, location or regulatory status. Its purpose is to empower the most influential community in payments, where the connections, collaboration and learning shape an industry that works for all. It works closely with industry stakeholders such as the Bank of England, the FCA, HM Treasury, the PSR, Pay.UK, UK Finance and Innovate Finance.

Through its comprehensive programme of activities and with guidance from an independent Advisory Board of leading payments CEOs, The Payments Association facilitates the connections and builds the bridges that join the ecosystem together and make it stronger. These activities include a programme of monthly digital and face-to-face events including an annual conference, PAY360, The PAY360 Awards dinner, CEO round tables and training activities. The Payments Association also runs seven stakeholder working project groups covering financial inclusion, regulation, financial crime, cross-border payments, open banking, digital currencies and ESG. The volunteers in these groups represent the collective views of the industry and work together to ensure the big problems facing the industry are addressed effectively. The association also conducts original research which is made available to members and the authorities. These include monthly whitepapers, insightful interviews and tips from the industry’s most successful CEOs.