Steve Smart on combatting financial crime: talk to each other more!

One year after Steve Smart became the FCA's joint executive director of enforcement and market oversight, he has broken his (sort of) silence by delivering a set-piece speech at an industry conference.

He definitely outshines his colleagues in the banter department (golden threads and boiling frogs, et cetera), humorously recounting his departure from a brewery job to save his liver and poking fun at his own surname. 

And he clinches 2024's most alliterative FCA catchphrase so far, telling "finfluencers" that "promotions aren't just about the likes, they're about the law".

Down to business, though.  He and his co-head Therese Chambers are singing from the same songbook, unsurprisingly - but there are a few new twists.  Let's do a top five.

5. Are the kids alright?

Smart makes the usual hay of the FCA's successes e.g. less reported fraud, more convictions.  But acknowledges it is a "mixed picture" as the fraud and financial crime landscape evolves.  

Developments include an explosion in investment choice enabled by tech (presumably trading apps, crypto and so forth).  Fraudsters' use of AI and deepfakes.  And also the typical age of fraud victims: pre-pandemic it was 50-69 years old, but now 20-39 year-olds are just as likely to come to grief.

My advice for firms: on vulnerability, shift your focus towards younger customers, building on your existing efforts for older cohorts.  Tailor these efforts to customers' individual needs, remembering that the FCA in its Consumer Duty work warns firms against blanket vulnerability classifications.

4. Rowing back on investigations publicity

Smart says that the FCA will take "a few months" to consider the way forward on these proposals.  In the meantime he cements some of the FCA's recent reassurances: while looking to publicise investigations "at an earlier stage", this "may not necessarily be at the outset", with each investigation considered case-by-case and no presumption of publication.

3. Running the gamut

Smart takes us on a whole-of-lifecycle journey of the FCA's financial crime efforts.  From prevention (scam warnings, a stringent approach to authorisations, and supervisory work to keep firms' systems and controls a step ahead) through detection (data sharing and analysis, automated identification of unauthorised promotions), tracing, freezing and confiscation, and ultimately both enforcement and prosecution.  With a bonus dose of claiming a CEO's scalp over market conduct issues even though no formal action was taken.

This all feels pretty intentional.  Smart wants to stress that the FCA will nimbly and adaptively choose the right tools for each job.  

Your take-away: be ready for the range of possible FCA responses to a given issue, including those in the senior individual accountability space.

2. Enforcement reset - still loading…

A notable weak spot: Smart cited enforcement outcomes that were at best tangentially relevant to financial crime (the HSBC arrears-handling action and the Citi fat finger fine action).

No doubt he is eager for FCA Enforcement to clear its decks of historic work so it can pursue more new financial crime investigations.

He reiterates a focus on a streamlined investigation caseload aligned with FCA strategic priorities - consumer protection, market abuse and financial crime - and a focus on improving the speed of investigations to enhance deterrent effects.

Much of this is still just a statement of aspiration, though Smart does say that the FCA is "developing how the different strands of our organisation - enforcement authorisations and supervision - work in a more integrated way".  Something every contentious regulatory practitioner will look forward to.

1. Go team!

And here's the crux of it.

For Smart, it's critical that everyone, in their mutual interest, collaborate on collective responses to fraud and financial crime.  

This starts within the FCA but he sees it as key for the FCA to work with a wide range of agencies domestically and abroad - and collaboration with (and within) industry is pivotal.

Central to this is sharing data and intelligence, particularly to identify and disrupt fraud networks.  Smart says that the FCA "strongly encourage[s] firms and cross-sector partners to participate in data sharing initiatives".

So: get ready for FCA engagement with you on this.

Expect to field questions about data quality and production/sharing methods (perhaps pivot additional resource into consolidating legacy systems and automating data flows).

And also to more frequently encounter the knotty intersection of customer confidentiality with anti-fraud collaboration.  Here, keep your external advisers at the ready.  And perhaps it's time to re-focus on some of the ideas from the 2019 AML TechSprint?