TLT partner and head of financial services Andrew Lyon talks to The Lawyer about the increase in financial crime over the past 18 months, the subsequent increase in litigation activity and whether regulators have enough resources to cope with this.
Has the pandemic increased fraudulent behaviour and have you seen financial crime or fraud-related work increase as a result?
It has been widely reported that financial crime in all its guises has heavily increased over the past 18 months, no doubt fuelled in part by the pandemic. For the third consecutive year, UK Finance’s half-year fraud update notes a significant increase in payment frauds specifically highlighting investment scams, impersonation and APP frauds as well as other online scams, both during and specifically related to COVID-19. Those figures reflect what we are seeing amongst our clients. We are also seeing increasing levels of concern in the context of Government-backed loan schemes where the need to get money out quickly to customers, left bank lending open to significant abuses. Many clients now tell us that financial crime is their key focus and it is certainly where we are seeing a significant growth in instructions. When this is coupled with the forthcoming end of payment holidays and litigation and enforcement moratoriums, which normally quickly uncover underlying fraudulent activities, we can anticipate a sharp increase in litigation and enforcement work in the third quarter of this year.
Will Covid-related fraud lead to increased litigation in the UK courts?
We are already seeing increased litigation activity including requests for assistance with pre-emptive relief including injunctions, Norwich Pharmacal and Bankers Books applications and tracing claims including those which have cross jurisdictional elements. This trend is set to continue and we also see increasing activity from Claims Management Companies and litigation funders who are gearing up to support groups of individuals and companies pursue alleged losses, possibly under group litigation orders. In this context, many of our clients have seen a spike in FOS referrals and it is likely that judicial review applications will increase. It will also be interesting to see how the new Business Banking Resolution Service beds in as an alternative to pursuing matters through the Courts but there will be some challenges with volumes and resourcing.
Will financial crime regulators need to play catch up after working from home for the past 15 months and do they have enough resource to cope with an increase in fraud?
We can’t speak for the impact of remote working on the regulators’ ability to cope with workload but the regulators openly accept that they have always had resourcing issues. We are aware that the regulator is promoting increased and more consistent use of technology to facilitate early detection of fraudulent activity and working more closely with partners in law enforcement to share information on Covid-related financial crime with the intention of being able to detect and respond to fraud earlier before wider market risk crystallises. As to whether these steps will allow the regulator to keep pace with its workload, only time will tell. The onus remains on lenders to ensure that they have the right systems and controls in place to mitigate financial crime risks. We expect regulators to place a spotlight on firms operational resilience in this space including through s.166 skilled persons reviews. The recent Dear CEO to retail banks letter on financial crime demonstrates this point. In addition, widespread working from home has inevitably led to more complexities and greater risk for regulated firms in terms of supervision and information security. This again is likely to lead to an increased workload for regulators.
What is your favourite book and why?
I’m a big fan of the James Elroy crime noir genre but as a kid it was Lord of the Rings and The Hobbit. The one book that truly blew me away in more recent times was Birdsong by Sebastian Faulks, an horrific yet incredibly moving account of life on the frontline in WW1.
