Treasury Committee publishes report on fraud, scams and economic crime

The Treasury Committee today calls for additional Government action to combat fraud and scammers as it publishes its report on Economic Crime.

The report, which was unanimously agreed by the cross-party Committee of MPs, urges the Government to legislate against online fraudulent adverts and seriously consider whether online giants should reimburse those who fall victim to scams on their platforms.

The Committee also recommends that the Government urgently legislates to make reimbursement for victims of ‘authorised push payment fraud’ mandatory – repeating a call made by the previous Treasury Committee in 2019.

In a series of recommendations, the report calls for law enforcement to be appropriately resourced to tackle the scale of the problem, for the Government to consider whether a single law enforcement agency with a clear responsibility to fight economic crime would be more effective, and for proper regulation to be introduced to protect consumers from fraud and money laundering in the cryptoasset industry.

The Committee also advocates higher company formation fees and Companies House reform in order to prevent fraudsters from hiding their identities behind UK businesses to launder money and conduct crime, and pushes for the Government to set out the legislation it is current working on which could be included in an Economic Crime Bill.

Commenting on the report, Rt. Hon. Mel Stride MP, Chair of the Treasury Committee, said:

“For too long, pernicious scammers have acted with impunity, ripping off innocent consumers with fraudulent online adverts, impersonation scams and dodgy crypto investments.

“Unfortunately, fraud has soared during the pandemic, and as MPs we’ve heard heart-breaking stories of individuals who have fallen victim to these criminals and lost large sums of money.

“While the Government have made some progress in this area, we’re today calling on them to push harder and act faster on the growing fraud epidemic. Some of our recommendations, such as legislating against online scam adverts, can be implemented quickly. Others, including crypto regulation and Companies House reform, will require a longer-term approach. Taken together, our proposals give the UK a fighting chance to get back on the front foot and stop these scammers in their tracks.”

Report summary:

The Government’s response to the rise in economic crime

• The Government should consider whether the governance of the Economic Crime Plan should be centralised in a single department. Its strategy for combatting fraud should focus on outcomes, not processes, and its explicit target should be to reduce substantially the level of fraud.
• The Government should set out the legislation that is relevant to addressing economic crime which is being worked upon across Government and could be included in an Economic Crime Bill.

Effectiveness of law enforcement agencies

• The number of agencies responsible for fighting economic crime and fraud is bewildering. The Government should consider whether there should be a single law enforcement agency with clear responsibilities and objectives to fight economic crime.
• The Government must consider why economic crime seems not to be a priority for law enforcement, and how it can ensure it becomes one. It must ensure that law enforcement agencies are appropriately resourced to tackle the scale of the problem.
• The Government should provide a breakdown of how additional Home Office funding for fighting economic crime will be spent, and how much of that funding will reach crime-fighting agencies. The financial resources being brought to bear on the problem are fragmented and modest when compared to the losses attributed to fraudulent activity. Given the scale of the problem and the speed at which it is growing, we remain to be convinced that this extra resource will enable a sufficient response.

Online economic crime

• The Draft Online Safety Bill should be amended to include fraud offences, requiring online firms to be proactive rather than reactive in removing it from their platforms. These steps would place greater responsibility on online companies to prevent their platforms being used to promote financial fraud.

• The Government should consider whether online platforms should be required to conduct Know Your Customer checks on advertisers. We welcome steps taken by certain online firms in facilitating access to their platforms only for financial promotions placed by entities which are authorised by the FCA. We urge other online companies which have not made such commitments to follow suit.
• The Government should not allow online companies to ignore legislation designed to protect consumers from harm. The Government should ensure that financial services advertising regulations apply also to online companies, and that the FCA has the necessary powers to effectively enforce the regulations.
• Placing a responsibility on online companies to reimburse consumers who are victims of online fraud could rapidly transform their approach. The Government should seriously consider whether online companies should be required to contribute compensation when fraud is conducted using their platforms.

Authorised Push Payment fraud

• The Government should urgently legislate to make reimbursement for victims of authorised push payment fraud from financial services firms mandatory.

Anti-money laundering

• The Suspicious Activity Reporting (SARs) reform programme is likely to improve anti-money laundering systems and bolster the ability of law enforcement in the fight against economic crime. However, it is disappointing that the SARs reform programme is not yet complete. A timeline showing when the SARs reform programme milestones are expected to be met, and an annual progress report on the programme, should be provided to the Committee.
• The UK is a world-leading financial centre and needs an extensive legislative and regulatory regime to protect its financial system from money laundering. It is not obvious that either regulation or enforcement systems are up to the job. There is still much that the Government needs to do to make it more difficult to launder money in the UK.
• We will continue to monitor the de-risking of customers by banks. We recommend that the FCA report annually on numbers of de-risking decisions and on progress to ensure that banks are not unfairly freezing bank accounts.

Cryptocurrencies and economic crime

• There are increasing risks around cryptoassets and economic crime and, while we welcome news that the Government will legislate to bring advertising of cryptoassets into line with that of other financial services and products, the Government should ensure there is proper consumer protection regulation across the whole cryptoasset industry.

• The Government should set out its intention for all cryptoasset firms to be registered for anti-money laundering (AML) purposes. This has not yet been achieved. It is unacceptable that, having introduced AML regulations for cryptoasset firms in 2020, there are so many firms which have not yet been registered.

Companies House reform

• Reform of Companies House is essential if UK companies are no longer to be used to launder money and conduct economic crime. The problems with UK company structures were identified in 2014. On current plans it will have taken over 10 years to improve matters, during which time a large number of UK companies may have been put to criminal use.
• The low costs of company formation present little barrier to those who wish to set up large numbers of companies for dubious purposes. The UK should be charging fees similar to those in other countries. The Government should significantly increase the costs of company incorporation. A fee of £100 would not deter genuine entrepreneurs and would raise significant additional funding for the fight against economic crime.
• Improving transparency of ownership of UK property is an important step to improving defences against the misuse of UK assets and companies by criminals and kleptocrats. We are disappointed that the Registration of Overseas Entities Bill is still awaiting introduction, more than five years after it was promised, and urge the Government to include it in the Queen's Speech for the next Parliamentary session.