The Financial Conduct Authority (FCA) has recently published its findings on how firms are using the National Fraud Database (NFD) and money mule account detection tools to combat financial crime. The review highlights both positive practices and key areas where firms must improve to effectively disrupt money mule networks. Given the significant role of money mules in facilitating fraud and laundering illicit funds, these insights are critical for financial institutions and payment service providers.
Understanding money muling
Money muling is a financial crime in which individuals, knowingly or unknowingly, move the proceeds of fraud through their accounts on behalf of criminals. The National Economic Crime Plan (2023-2026) has identified money mules as a major enabler of fraud and other criminal activities. Alarmingly, FCA data indicates that while 194,084 money mules were offboarded by 25 firms between January 2022 and September 2023, only 37% were reported to the NFD.
Findings from the FCA’s review
The FCA examined the practices of 13 firms, focusing on their use of the NFD and money mule account detection tools. Key findings include:
- Inconsistent reporting to the NFD
- The proportion of identified money mules being reported to the NFD varied significantly between firms. Some reported over 66% of cases, while others reported as few as 6%.
- Some firms screened customers against the NFD but failed to submit their own cases, undermining the collective intelligence of the database.
- Internal policies prevented certain cases from being reported, including attempted fraud, certain age groups, or cases below a specific fraud loss threshold.
- Delayed and inadequate screening practices
- Only one firm in the sample performed real-time checks against the NFD. Others failed to promptly detect new fraud markers added to the database, sometimes missing them for over two years.
- Many firms faced delays in obtaining responses from other firms when confirming suspected money mules, hindering timely action.
- Shortcomings in money mule account detection
- While some firms used a money mule detection tool effectively, others relied too heavily on internal thresholds, which were sometimes miscalibrated, leading to missed alerts.
- Firms were generally good at investigating first-generation mule accounts but less proactive when funds moved further through the network.
- Gaps in customer Due Diligence and Transaction Monitoring
- Some firms failed to collect or verify information on customers’ expected annual income or business turnover at onboarding, making it harder to identify unusual transaction patterns later.
- Many firms struggled to retrieve proof of ID and address documentation, especially when third-party identity verification services were used.
Best practices for strengthening controls
To enhance the fight against money mule activity, firms should:
- Increase NFD reporting – Firms must take a more consistent approach to reporting money mules, ensuring that all cases meeting the standard of proof are submitted.
- Conduct real-time screening – Implementing continuous checks against the NFD can help firms detect fraudulent activity before it escalates.
- Improve collaboration – Faster responses between firms will allow for quicker identification and reporting of mule activity.
- Refine detection tool thresholds – Adjusting fraud detection parameters can help identify mule activity across all stages of fund movement.
- Strengthen onboarding and monitoring – Collecting and verifying key customer data during onboarding can improve ongoing transaction monitoring.
- Enhance consumer education – Firms should play an active role in warning customers about the risks and legal consequences of money muling.
Strengthening fraud defences: Next steps
The FCA’s findings highlight the need for firms to take a proactive, data-driven, and collaborative approach to combating financial crime. Strengthening fraud detection frameworks, increasing NFD reporting, and refining transaction monitoring will be crucial in preventing fraudsters from exploiting the financial system. Firms must take these insights seriously and work towards a more unified and effective response to the growing threat of money muling.
At Neopay, we are committed to helping firms navigate compliance challenges, enhance their fraud prevention strategies, and refine their reporting frameworks. Regularly reviewing fraud detection and monitoring methodologies, swiftly addressing weaknesses, and prioritising consumer education are essential steps in tackling financial crime.
Get in touch to learn how we can support your firm in implementing best practices and building a stronger, more resilient financial ecosystem.
