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Technology and training vital in FCA’s Post Office fraud initiative

Curbing deposit limits for bank customers via Post Offices is an easy win, but for true progress in national anti-money laundering (AML) efforts there is still more to do

It makes sense to implement some quick fixes to support efforts to combat fighting financial crime, but a bolder approach may be required in light of the UK regulator’s move to curtail fraud risk via Post Offices.

The Financial Conduct Authority (FCA) has moved to tackle the inherent fraud risk that exists when high street bank customers use the Post Office to deposit money.

This system has been a lifeline for individuals and small businesses amid the shrinking physical footprint of retail banks across the UK, but now the financial watchdog has published the Banking Framework Agreement, a list of requirements for banks that accept deposits via Post Offices, some changes are afoot.

While most of the announced measures may not feel new to banks in the context of their existing operations, the FCA expects banks to introduce new deposit limits below the existing £20,000 per transaction limit.

This might seem like an easy hurdle for banks to jump in order to satisfy the regulator that they are taking action, but it’s clear the FCA expects banks and the Post Office to keep all their controls, including new ones, under review to ensure their continued relevance and proportionality.

Balancing act

Cutting deposit limits may appear a quick fix for banks, however, institutions should not only consider how far they drop these, but also how vital more fundamental changes are in tackling this avenue of financial crime.

Proportionality is key in setting a new deposit limit, because vulnerable customers, small businesses, and those without local bank access could be unfairly impacted if their access to this financial service is unnecessarily impeded. It’s also important to recognise that whilst for many of us cash has become something we rarely use these days, for many it remains their preferred, or even only, method of payment. Any new regulatory rules must be wary of causing unintended harm, which may be disproportionately skewed to those that rely on cash the most – often small businesses, the elderly and the most vulnerable.

Few would argue that the ability to deposit cash into a bank account via a Post Office should allow the system the accept greater vulnerability to the placement and integration of illicit funds.

But if the problem is going to be genuinely tackled, both banks and the Post Office need to focus on training staff as well as implementing tech-based systems to help identify suspicious deposit patterns.

Smaller limits are an inconvenience for fraudsters, rather than genuine barriers like those provided by fully trained staff and intelligent recording and monitoring systems.

Strategic goals

The depth of AML training received by Post Office counter staff is unlikely to be as comprehensive as that of their bank-based peers, which is in some ways understandable given the wider risks associated with a bank versus the Post Office.

Post Office counters are present in thousands of sites across the country, including in small towns and villages where Post Office staff are often operating another business in the same premises, such as a local convenience shop.

This may mean that the training and tools that Post Office staff receive may not equip them as well to spot and stop illicit activity.

This is why it makes sense that the FCA has made banks focus on transaction monitoring of their Post Office-linked payment flows in its new rules, alongside suggesting that cash-handling training be given to Post Office workers.

However, while training staff is imperative, banks, the Post Office, the regulator and wider authorities should make it a priority to work towards a country-wide alert system where all institutions work together to combat the most prevalent fraudsters.

Banks are increasingly harnessing artificial intelligence (AI) to support skilled teams to help bolster fraud detection efforts, which will hopefully lead to a decline in nationwide fraud.

Power of progress

Even if a national system emerged as an ambition shared amongst key stakeholders, it will not happen immediately.

What’s most important now is that progress is made with the Banking Framework Agreement, and that all those involved recognise the importance of any small wins in AML efforts.

The FCA has not given a timeframe for when it wants banks to fully update their rules and processes, and so it will be vital for the regulator to state when it might conduct an initial analysis of progress so that banks know when they might be scrutinised.

Before making any changes, though, banks should assess whether legitimate customers will be disproportionately impacted by any additional controls.

It can be tempting to enact policies that eliminate a risk entirely, but doing so can impede the ability of valid customers to access banking facilities.

As ever, communication will be vital here given that all stakeholders have the same goal. Collaborating on best practice, sharing initiatives, and working together to create digital monitoring and detection systems could mean the defences against fraud are more rapidly enhanced.

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