How are Members Protected?
The FCA uses the term "consumer” and in this learning module the consumers we are particularly referring to are pension scheme members.The FCA ensure that firms stick to the rules and take appropriate action to protect themselves against fraud.It is also important to ensure that consumers don’t fall victims to scams or get tied into unfair contracts.
Money Laundering
This is the process by which the proceeds of crime are concealed by converting them into assets which appear to have a legitimate origin.There are three stages involved:
The FCA regulation and supervision requires firms to have in place systems and controls in order to reduce financial crime including money laundering.
Firms are required to undertake customer due diligence before entering into any financial transactions and are also required to monitor the customer relationship in order to identify unusual requests which could suggest potential money laundering activities.
It is an offence to:
Whilst firms are regulated to protect against financial crime there are many risk areas where individuals could become victims.
Information Security
One way of protecting members’ data is to ensure that their information is held in a secure place. Firms must have systems and controls in place to protect personal details such as Address, National Insurance Number, Earnings and Account details.Information Security also includes:
Increased use of the internet and on-line banking has made it easier for thieves to steal personal information and sell it on to others for fraud or identity theft.In 2002 the BBC reported that identity theft cost the UK £1.3billion a year and in 2006 they reported it had increased to £1.7 billion a year.
In 2010 the Independent reported that almost 2million people have had their identity stolen each year at a cost of £2.7billion. In that article the National Fraud Authority (NFA) said that more than £1.9billion of it was money that criminals obtained from using other people’s identity and the rest was the cost of preventing and detecting the crime and putting the damage right. The NFA also said that in very serious cases it can take more than 200 hours to resolve the problems.You can see how important it is for members to protect themselves and the National Crime Agency website has more information on this.http://www.nationalcrimeagency.gov.uk/
Scams
The FCA will take action against fraudsters involved in scams using financial or investment products. They issue alerts about firms and individuals based both overseas and in the UK who operate without FCA authorisation.Some typical scams are:
On-line Job scams
A person thinks they have got a legitimate job but their bank account is used to transfer money, usually from one currency to another.
Liberation
A pension scheme member is led to believe that by transferring their pension benefits they will be able to access the cash before the earliest retirement age of 55. Members should be wary of adverts for accessing their pension early. Pension Liberation is illegal where members do not have a statutory right to transfer. They are misled about key factors such as tax consequences, fees or how the remainder of their pension fund will be invested. Tax charges and penalties incurred may be up to 55% of the value of the member’s transfer pension savings.
Other scams
Alternatively, a member may be induced to transfer their pension benefits to take advantage of unique investment opportunity to get better returns on their pension than they are currently getting. This sort of offer can be a scam leading to the member losing the whole of their pension. The member may also incur the same tax charges and penalties as for a Liberation case.
On-line Banking scams
E-mails appear as if from legal banks asking for verification of identity and account details, more commonly known as "phishing”. AlternativelyHow to spot a potential scam:
Remember, if it looks too good to be true, it usually is!
Whistleblowing
If an employee suspects wrongdoing then they must report it as soon as possible to prevent the company being exposed to money laundering activities. The reporting should not be delayed whilst waiting for proof of the suspicious activity. Often it may be that something unusual has occurred e.g. a person has tried to make an exceptionally large cash payment. Maybe the customer behaved strangely or made unusual requests that don’t seem to make sense. Perhaps the transaction that they wanted to make just doesn’t add up commercially. It is important to look at all transactions carefully to see if there is anything suspicious.
Employees should follow their own organisation’s procedures first which normally involves reporting the suspicion to their nominated officer known as the Money Laundering Reporting Officer (MLRO) who is in turn responsible for investigating and reporting it to the National Crime Agency.
The Prudential Regulation Authority
The PRA is part of the Bank of England. It is responsible for prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms.
The PRA sets standards and supervises financial institutions at the level of the individual firm.
For example, insurance companies dealing with Annuities or Life Insurance cover will be regulated by the PRA.
