Fraud in Fintech under scrutiny

New regulations mean that failure to prevent fraud will carry additional penalties.

Alex Speedie

January 14, 2025

Effective September 1, corporations will bear increased accountability for fraudulent actions by their employees or associated third parties if such actions benefit the corporation. Ignorance will no longer suffice as a defence under the new Economic Crime and Transparency Act (ECCT). Notably, this law applies even to corporations not registered in the UK, emphasising its global implications.

‍

With fraud accounting for 40% of all reported crimes in the UK, the Act aims to compel businesses to monitor the conduct of employees, consultants, and contractors—or face legal consequences. Examples of potential misconduct include misleading sales practices, dishonest financial market activities, and withholding critical information from consumers or investors.

‍

Broad Scope and Initial Enforcement

The Act’s application is broad, encompassing activities such as:

False representations in transaction documents, prospectuses, or annual reports.
Misleading statements by directors to shareholders.
Third-party misrepresentations of product or service quality to enhance sales or financial performance.

‍

Initially, enforcement is expected to focus on severe cases, but the scope could expand over time. Companies engaging in enterprise-level sales pitches or relying on third-party sales channels must be particularly vigilant, as misrepresentations by these entities could expose the corporation to liability.

‍

The Regulatory Landscape for Fintechs

The ECCT is part of a broader trend toward heightened regulatory oversight, particularly in the fintech sector. For example:

The Digital Operational Resilience Act (DORA), effective this week across the EU, standardises rules for operational resilience.
The UK is currently consulting on regulatory frameworks for crypto and fintech.
Recent fines imposed by the FCA on companies like Metro Bank, Starling, and Revolut highlight the shift toward stricter enforcement, where regulation is increasingly used to drive compliance.

‍

This regulatory momentum underscores the need for fintechs to bolster their Risk and Compliance functions. Misrepresentations by third-party affiliates, for instance, could lead to breaches of the ECCT, potentially triggering investigations by the Serious Fraud Office (SFO) and exposing the company to significant reputational and financial risks.

‍

Strengthening Risk and Compliance Teams

To navigate these challenges, fintechs must invest in robust compliance frameworks and expand internal capabilities, focusing on:

Developing and implementing comprehensive anti-fraud policies.
Enhancing internal training and awareness programs.
Strengthening financial controls and introducing regular audit mechanisms.
Establishing ongoing monitoring systems to identify and address risks proactively.

‍

Larger fintechs, in particular, will need to scale up their internal teams to meet these evolving requirements. Functions such as Internal Audit will be critical for maintaining compliance and mitigating risk.

‍

Talent as a Competitive Advantage

As these regulatory changes take effect, having the right expertise in-house will be vital. At Rex Machina, we specialise in helping fintechs attract and retain top talent to ensure they remain compliant and well-positioned for growth. Whether you need to fill key Risk & Compliance roles or expand your Internal Audit team, our expertise can help you secure the talent required to succeed in this rapidly evolving landscape.

If your organisation is facing challenges in meeting these new demands, contact us today to learn how we can support your journey toward regulatory excellence and sustained growth.

‍

Share this to your socials:

Fraud in Fintech under scrutiny

sign up to our weekly newsletter