Regulatory independence vital in fight against fraud

Written by Rachel Adamson on Monday November 21, 2022

An unprecedented wave of fraud and scams is currently engulfing the UK. Scams offering energy-savings grants skyrocketed by 85% in the last month alone, and, according to the fraud prevention service Cifas, fraud schemes around asset finance products have increased 162% in the first nine months of 2022 compared to last year.

At a time when effective, efficient and prevalent policing and regulation of fraud is desperately needed, the new UK government is pursuing policy that would see HM Treasury potentially granted authority to intervene with or overrule the City’s key regulators, including the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

This has elicited grave concern from senior figures, including the FCA chief Richard Lloyd, who warned that the UK’s international reputation as a financial services leader is in peril. This should be sounding alarm bells both throughout the City and amongst financial services consumers.

In order to do their jobs properly, regulators must be able to act independently and without government intervention. Rather than seeking to tighten its grip on regulators, the UK government should be safeguarding their independence as a matter of urgent priority as we continue to do battle with the ever-growing scourge of fraudsters and scammers.

Thinking long-term

The British political climate of the past few months has brought into sharp focus why it is vital that regulators remain able to operate independently of the government. If there is to be built a proper, lasting resilience against fraud in the UK, we must have a long-term strategy that is underpinned by a consistent and unwavering approach to regulating the financial services industry. For this to succeed, regulators must not be exposed to the sort of political turbulence witnessed in UK over the past year. 

As demonstrated by the recent exchange of power in the roles of both the British chancellor and the prime minister, and the new chancellor’s subsequent reversals of nearly all of the policies announced in the ill-fated ‘mini-budget’, the government’s priorities, directions and approach are liable to swing and change drastically in tandem with changes of personnel, government or political party.

These changes have immediate consequences on policy and the markets, and the FCA and PRA must be able to work freely, with the sole purpose of protecting the consumer. If HM Treasury is able to intervene on regulators’ agendas or plans, then the regulatory regime risks becoming stifled by political instability. If a regulatory package can be signed off by one government, only to be completely reversed within weeks by another, fraudsters will run rampant with no long-term regulatory framework to stop them.

To prevent this, regulators must remain unbound to short or medium-term political fluctuations. Consumer confidence and safety is, to a large degree, dependent on regulators being a steady ship in the face of governmental volatility. If the FCA and PRA are made political pawns by the proposed deregulatory package, this will jeopardise their long-term goal of protecting financial service consumers.

HM Treasury’s stated aim of deregulating the market is to create the strongest place for financial service businesses to operate in the world. However, enhancing the government’s control over regulators as part of this plan could result in the opposite outcome, as the regulatory framework could become completely shackled by political turbulence.

The importance of long-term planning and strategy for properly protecting consumers cannot be understated. Even in times of relative political stability, the regulatory agenda would be constantly changing as power is handed from one government to the next due to the very nature of the UK’s democratic political system.

Independence in action

We have only recently seen first-hand clear evidence of why it is crucial that regulators remain independent of government direction and policy. This was demonstrated in exemplary fashion by the Bank of England’s intervention following the ill-fated ‘mini-budget’. With the markets facing a series of the most volatile days in history, the Bank of England’s quick decision making and rapid deployment of £65 billion for damage control proved vital in restabilising the UK economy.

These important, quick-response moves may have been impossible if it were not for the Bank of England’s ability to act with independence from government mandate. If the government had the authority to dictate or heavily influence the Bank of England’s decisions or responses, these actions may have been delayed or even blocked entirely. As a result, the economy would have continued to endure panic and turbulence, and ultimately consumers would have suffered to an even greater extent.

The proposals in the Financial Services and Markets Bill could potentially grant the government these powers over regulators, hindering their ability to properly and quickly respond to the needs of the markets. Quite simply, this must be avoided.

Effective cooperation between the government and independent regulators is undoubtably an important aspect of setting a robust regulatory framework. However, with fraud running rampant in the UK, regulators must be able to act and respond with the same nimble autonomy as the Bank of England did, ultimately remaining empowered to best protect consumers.

Moreover, for London to remain competitive and at the forefront of the field, regulators must also be able illustrate that they are operating only in the interest of the consumer when setting their long-term agendas.

Safeguarding civil procedure

Currently, only a fraction of reports of fraud are elevated to criminal proceedings, and the House of Commons Justice Committee recently estimated that of the 4.6 million cases of fraud reported each year in the UK, only 0.16%[1] are prosecuted. Meanwhile, whilst it accounts for 40% of crime, just 2% of UK police funding is allocated to combatting fraud. It is therefore pivotal to maintain a strong and effective civil enforcement system, as it is essentially all that remains shielding consumers from fraudsters.

Moreover, fraud schemes in the post-COVID digital age are increasingly sophisticated. In the run up to Christmas, Barclays has issued a blanket warning to shoppers to be particularly wary of online purchase scams, which the bank reports have risen by 70% year-on-year. Consumers, the bank said, should pay attention to their gut-feeling. Whilst sound advice, it is simply not good enough to expect the public to be able to intuitively detect scammers.

Fraud of this nature requires a dedicated and specialised response led by properly functioning regulators and underpinned by a robust and equally sophisticated regulatory framework. The FCA, PRA and other regulators must be able to exercise their expert resources without being hindered by government influence.

Pursuing an agenda of deregulation could see UK consumers left at the mercy of criminals, with minimal or no enforcement on fraudsters allowing them to operate with little fear or accountability.

Lingering questions

Although the exact nature of powers that could be granted to the government are yet to be revealed, Richard Lloyd’s concerns that the ‘perception of the erosion’ of regulators’ independence ‘will happen very rapidly’ strikes at one of the major issues of the UK government’s current course. The UK is gambling with its reputation on the world stage, and the government is risking consumer confidence in the financial services market.

The UK government must take proactive action to assure regulators, the public and the world that UK financial regulators will not become politicised. 

It is no secret that UK regulators have been struggling with their own internal issues that have hindered their ability to prosecute fraud, so there are certainly potential benefits in streamlining regulation. However, any process pursuing this goal must avoid infringing on regulators’ independence. Furthermore, it appears the extended reach of government influence is merely proving yet another headache for regulators who are already trying to tackle a major fixing-house project. 

At a time when safeguarding the UK economy and consumers should be top priorities, neutrality will ultimately allow regulators to best do their job. When it comes to maintaining the UK’s leading reputation for financial services, the government would be wise to let sleeping watchdogs lie.


[1] UK Parliament, ‘Justice response inadequate to meet scale of fraud epidemic’, 18 October 2022: - accessed November 2022

About the Author

Rachel Adamson is Head of Fraud and Regulatory at Adkirk Law. The views expressed in this thought piece are those of the author and do not necessarily represent those of ICA.

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