Introductory address to the Financial Crime Conference
Speech by Hector Sants, Chief Executive, FSA
at the Financial Crime Conference
24 April 2008
Good morning and welcome to our annual Financial Crime Conference. This is the first time I've addressed this conference and I welcome the opportunity to give an overview of the extensive work we at the FSA undertake to tackle financial crime. You will recall that one of the FSA's statutory objectives is to reduce the extent to which the firms we regulate can be used for financial crime purposes.
It has been clear to us from the outset that we cannot pursue this objective in isolation and that we need to work with a wide range of other organisations and authorities. So it is gratifying to see so many of our intelligence partners here today. Your attendance emphasises the importance we place on cross-organisational co-operation to address financial crime and its growing complexities.
First, a word about how we in the FSA organise our work to combat financial crime. We decided last year that we needed to increase our own focus on, and resources committed to, financial crime. At last year's conference, my predesessor announced a new structure for the Financial Crime team, creating a specialist Financial Crime and Intelligence Division. The aim was to create a centre of expertise to provide FSA-wide advice and intelligence. I am confident that we have managed to achieve that, under Philip Robinson's leadership. His team brings together much of the FSA's existing financial crime expertise, previously spread across the organisation, and we have recruited many specialists to increase our resources devoted to tackling financial crime.
The new division encompasses three teams; policy and intelligence, the financial crime sector team and financial crime operations. All of them have their own particular role to play in delivering on our financial crime mission - 'to provide the leadership, tools and expertise to enable the FSA to meet its financial crime objective and maintain the integrity of the UK's Financial Sector' - as well as our overarching enforcement priority of achieving credible deterrence.
Much has been achieved in the past year and we have enjoyed some notable successes, particularly as a result of the thematic work undertaken on mortgage fraud, boiler rooms and anti-money laundering. In March this year we helped 153 investors get back over £1 million, after they were illegally sold shares in two North American based-companies, Rocky Mountain Gold Mining Corporation and Rocky Mountain Gold Mining Inc. UK investors had sent about £1.25million to North America where Rocky Mountain's operations were based. Working with Canadian regulators, we helped to ensure plans were put in place to refund the money, a rare piece of good news for those duped into investing in boiler room scams. In this area we continue to share a considerable amount of intelligence with national law enforcement agencies, especially the City of London Police. The Rocky Mountain case illustrates the success our partnerships with overseas regulators can achieve.
Interest in organised mortgage fraud is rising and work we have undertaken has brought to light indications of organised rings operating in the UK. As discussed in our Financial Risk Outlook, published in February, Police and other regulators are also reporting increasing evidence of a rise in mortgage fraud. We are working with the City of London police and other interested parties to validate and expand our knowledge of the extent of the risk. The aim of this joint work is to inform, review and target our efforts as part of a broader push to deter and disrupt mortgage fraudsters across the UK.
We've also been working with mortgage lenders to ensure that our assessment of the risk is based on relevant data. Since 2006, we have engaged with lenders to obtain information, and we have received 200 referrals of interest to date. We have examined these cases carefully, and several have been referred for Enforcement action. The information and co-operation we've received from the industry has been crucial in developing our understanding of what we're up against. A quick glance at our website will show how serious we are about tackling this growing problem, with numerous fines over the past few months imposed on mortgage brokers who we have discovered are acting fraudulently. You may have seen that on Tuesday of this week we banned a mortgage broker for failing to prevent mortgage fraud.
Work undertaken in the anti-money laundering field has been extensive too. Last December saw the Money Laundering Regulations 2007 come into effect, a change in UK law which has been driven by the European Union's Third Money Laundering Directive. We provided advice to HM Treasury during the negotiation process for the new directive, which resulted in new supervisory responsibilities for the FSA. Since 15 November 2007, we've been accepting applications from types of businesses usually beyond our sphere, such as safe deposit box providers and financial leasing companies - these now fall into our scope for supervision of anti-money laundering controls (but not conduct of business regulation). HMRC, OFT, the Gambling Commission, professional bodies and other agencies have also seen their responsibilities extended, and we've been working with them to share our experiences of supervising anti-money laundering. We've done this through the new anti-money laundering supervisors' forum, which Philip Robinson chaired in its first year in operation.
Last summer, we published a report on the anti-money laundering risks in private banking. The firms we visited generally acknowledged that their businesses inherently presented a relatively high level of money laundering risk and they recognised the need to have robust systems and controls to reflect this risk.
Still on money laundering, in 2006 the Joint Money Laundering Steering Group published guidance following changes in the money laundering rules to a more risk-based approach. Last week we published the results of a piece of thematic work on how firms were adapting. We were pleased to see many examples of good practice, especially in the way that large firms have fully embraced the revised approach. We acknowledge that small firms generally represent lower anti-money laundering risk, and have fewer resources to devote to assessing and addressing these risks. We saw, however, room for improvement in some areas. These included ensuring staff are adequately trained, and treating risk assessment as an ongoing, rather than a one-off, exercise.
We continue to work to enhance the profile of the risk-based approach in the international arena. Philip chairs a working group in the Financial Action Task Force, developing guidance for other jurisdictions. Our policy experts have participated in a number of technical assistance visits and mutual evaluations. The UK sees real benefits from this work, because improved money laundering controls overseas are another way in which we make it harder for criminals to enter the financial system.
A key defence against financial crime is good data security. As you may be aware, we have today announced the results of a review of data security systems and control in 39 firms, including banks, building societies, insurance companies and financial advisors. Poor information security standards in firms put customers at an increased risk of becoming victims of identity fraud. We have warned firms of this risk in each of the last five editions of our Financial Risk Outlook. Our review identified examples of good practice across the industry but, sadly, many firms underestimate the risk of data loss and fraud to their businesses and customers. On occasions of significant data loss, some firms seemed more concerned about adverse media coverage than being open and transparent with their customers. We worked with the Information Commissioner, trade bodies and consultancies in carrying out this work. I'm delighted that Richard Thomas is here today to present his view of the risks as we launch our findings. We require firms to look after their customers' data with due skill, care and diligence, to operate and maintain effective risk management systems, and to have appropriate systems and controls in place.
Financial Crime is an area where the landscape is constantly shifting, both in terms of the regime within which we work, and the threats posed to us by criminals. We do not stand still but nor do the criminals whom we are targeting. Gathering robust information on the extent of crime and the risks it poses is a problem shared by regulators, law enforcement bodies, government and the industry. At last year's conference we announced a project, bringing together a broad range of economic and academic expertise, to get a better understanding of financial crime, and to use these concepts to develop methodologies to assess the scale, incidence and impact of financial crime in the UK. Once established, these methodologies will form part of our ongoing work programme as we use the conclusions to improve our business-as-usual risk assessment and resource allocation processes. We should also be able to learn more about the impact of the FSA's interventions, and monitor trends over time. We're aware that this is an ambitious project, and conscious of the limitations. But any steps to improve our understanding of financial crime will be positive.
There are significant developments in the work being conducted by a number of agencies on fraud. The National Fraud Strategic Authority (NFSA) will be co-ordinating those working to tackle crimes of fraud. I'm sure you'll hear more on this later from Sandra Quinn, whom we've seconded from the FSA to establish the NFSA. Also, Commissioner Bowron, of the City of London Police, will talk about the work his force are doing to implement the recommendations. And of course, we welcome the Attorney General's recent announcement of a consultation on plea negotiations in fraud cases.
I’d like to say a word about market abuse – I do not intend to dwell on this issue today, but I do wish to emphasise the importance we attach to this. Recent events in the market have only served to demonstrate the importance of our work in this area. In this context we welcome the Chancellor’s recent announcement of his plan to give us the statutory power to enter into immunity agreements. This power is available to the CPS and to the Serious Fraud Office and will be a valuable addition to our existing powers. We are determined to achieve our goal of credible deterrence and a resultant improvement in the quality of markets in the UK.
This morning I have reflected on what our partnership approach has helped us to achieve over the last year. However, I want to emphasise that this is just a starting point. Last year we committed to raise our game; this year, we intend to maintain this emphasis. In 2008's Financial Risk Outlook, financial crime was one of our priority risks. In the Business Plan for 2008/09, we restated our commitment to our three year financial crime strategy and increased resource levels in this area. Less benign conditions in other parts of the market will not dampen our resolve to see real changes in the vulnerability of firms, consumers and wider society to financial crime. Turbulent market conditions will not deter the criminals; indeed, it may provide them with new opportunities. Their techniques will continue to evolve, threatening those operating in the UK financial sector and causing harm to all of us as members of society. They will continue to progress; we must not allow ourselves to fall behind.
I'll leave it to Philip and the other speakers here today to discuss our key risks and issues for the future relating to money laundering and fraud. Our risk-based approach relies on information sharing. This conference is an opportunity to share our key findings, and facilitate discussions on the most important issues we face. I would encourage you to play an active part in today's discussions – we have built in lots of opportunities to ask questions. I am sure that this exchange will improve our shared understanding of financial crime issues and help us tackle them together.
I wish you a very interesting and productive day. It now gives me great pleasure to introduce Richard Thomas, the Information Commissioner to address the very important issue of risks to data security.