The Financial Services Authority (FSA) has fined Capita Financial Administrators (CFA), a third party administrator of collective investment schemes, £300,000 for poor anti-fraud controls over client identities and accounts.
The FSA says CFA had inadequately considered the risks posed by fraud and had not maintained effective systems and controls to mitigate the risk of fraud. This is first time the regulator has fined a firm for failures of anti-fraud systems and controls.
It says the failures in controls by CFA contributed to a small number of significant actual and attempted frauds against the firm’s customers, which appear to have been facilitated by “colluding” CFA staff.
The initial frauds were not discovered by CFA but were brought to the firm’s attention by clients.
In August 2004 CFA discovered a client’s name and address had been changed and the sale of units was being processed without instructions from the client. The firm then found the data for five other clients had been subject to unauthorised changes.
Fraudulent requests for payments totalling £1,134,938 had been made but were stopped from going ahead by CFA.
In September and December 2004 CFA discovered further actual and attempted fraud, including instructions for £417,321 being processed for 20 clients. Actual fraudulent payments totalling £324,241 were made.
Philip Robinson, FSA financial crime sector leader, states: “With fraud becoming an increasing menace, firms must fully understand the risks they face and have robust anti-fraud controls in place. The nature of CFA’s business, because it holds information on client identity, makes it particularly vulnerable to fraud. Yet the firm failed to adequately consider this risk in the business.”
He says the FSA’s recent report on fraud governance found parts of the financial services industry can do more to protect themselves and the CFA case demonstrates the FSA takes firm’s failures seriously.
The FSA adds that since the frauds were discovered, Capita Group has put in place an effective remedial programme at CFA and has taken a positive approach to improving systems and implementing controls at CFA which are consistent with best practice in the industry.
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