The Financial Services Authority (FSA) has called on banks and building societies to improve their work to detect and combat investment fraud.
A thematic review by the regulator found that they are not doing enough to detect the use of accounts to facilitate the fraud, which includes boiler schemes, carbon credit trading and land-banking.
Customers were also not being informed when they were suspected of being targeted by fraudsters.
A guidance consultation also published today set out good and bad practice in the area to help improve detection, including recommendations on the use of automated monitoring.
The FSA said: "It was not clear to us the banks we visited had fulfilled this aspect of their regulatory obligation to counter the risk they might be used to further financial crime.
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"We were particularly disappointed with banks' ability to detect where their customers may be complicit in investment fraud.
"Ongoing monitoring of the customer was often the responsibility of customer-facing staff with many other responsibilities, who often lacked the knowledge to identify investment fraud."
Among the examples of bad practice was failing to contact customers it suspects are making payments to investment fraudsters on grounds that this constitutes ‘investment advice'.
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