Is the financial sector losing to fraud?

A recent study announced that fines issued to UK firms and executives of those organisations for fraudulent activity, has exceeded £1billion in the past five years.

Overview of Study by Ernst & Young

The study commissioned by Ernst & Young collected data from over 700 cases reported since 2007 using information provided by three major UK government bodies. The investigation discovered that since 2007, UK companies have been fined a total of £976,119,238 with individuals being fined a total of £45,967,462!

Greater cause for concern is set out in the study as it found that 68% of all fraud cases over the past five years occurred within the financial services industry with cases involving the mortgage industry and specialised finance sector being the most prevalent.

Given the regulated nature of the financial services industry, this finding is worrying as regulators have had to step in frequently and issue punishments to businesses and individuals alike in the form of heavy fines and individual prison sentences.

The study revealed that individual prison sentences across all regulatory prosecutions ranged from eight months to ten years whilst the average fine for a fraud in the financial services industry was around £2million.

Impact on the Financial Sector

With the economic climate still in a fragile state, the financial services market and businesses within it cannot afford to be losing money due to negligence.

The results of the study indicate that businesses need to ensure that sufficient protections are put in place to limit their exposure to fraudulent activity. All too often, businesses and executives are not proactive in safeguarding against the risk of becoming a target for fraudsters.

If firms do not take appropriate action in safeguarding against fraudulent activity, not only will firms and its executives be at risk of fines and sentencing, but exposure to fraud may cause irreparable damage to a firm’s brand.

Key Considerations

It is clear from the study’s statistics that regulators are continuing to crack down on fraudulent activity, which should send out a clear message to UK businesses and their employees alike that misconduct will not be ignored.

Following their investigation, Ernst & Young has expressed that “Board members will need to take a look at what they are doing and undertake a full risk and systems review in order to identify any blind spots and identify who the fraudsters are.”

If fraudulent activity is discovered, it is important to act promptly and efficiently to ensure any loss suffered by the relevant business and damage to reputation is kept to a minimum.

Prevention is, however, the best cure and so executives should seriously consider whether their business has effective procedures in place for discovering and investigating fraudulent activity. For example, firms are advised to have an up to date written fraud prevention and reaction policy in place, which all employees should be aware of to ensure a firm’s procedures for the discovery and investigation of fraud are carried out.

In addition, are there any sections of hierarchy chains within the business, which lack supervision? Could these blind spots give rise to fraudulent activity by employees or senior executives within the firm, for example in respect of abuse of position or conflicts of interest? In certain cases, a business may need to considering restructuring its practice to ensure that all aspects of the business are monitored sufficiently in order to prevent the firm from being subject to fraud in the future.


This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.