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5 lessons financial institutions can learn from bounce back loan fraud

National Audit Office report

The National Audit Office has revealed fraudulent loans worth £4.9bn may have been awarded to criminals taking advantage of the COVID-19 Bounce Back Loan scheme. Due to insufficient counter-fraud controls amid the urgency of economic trouble following nationwide lockdown, it is estimated that almost 11% of the total financial aid was given to fraudulent actors.

The scheme was launched in March 2020, whereby UK businesses were offered up to £50,000 in Bounce Back Loans to prevent the local economy from collapsing. Banks, building societies and peer-to-peer lenders were green-lit to provide these loans, which were 100% government-backed. It remains to be seen whether the damage to UK financial institutions due to this fraudulent activity is more significant than estimated. £4.9bn of criminally-gained funds in the local economy places significant pressure on FIs in terms of the robustness of their anti-money laundering controls.

How to spot fraudulent loans

New accounts created – do you have sufficiently robust KYC and customer onboarding checks?

Businesses recently formed – do you have risk-focused procedures relating to companies incorporated post-March 2020?

Entities lacking consistent and verifiable income – have you obtained company financial documents? And are they consistent with a self-sufficient business model?

Business type – are you keeping a close eye on higher risk (e.g. cash intensive) industries that can be prone to money laundering activity?

Trained analysts in AML and CFT – are your analysts sufficiently equipped to spot telltale signs of fraud?

How can EFI help?

EFI has practical experience in this area. We were chosen by a Tier 1 bank to upscale their KYC processes in light of a sharp increase of COVID Bounce Back loan applications. During this process, a large team of EFI analysts supported the bank across all levels of KYC, completing 5,000 cases per month. EFI quickly adapted to the changing landscape and rapidly deployed teams given the unprecedented demand regarding urgent customer loan applications. Drawing on our combination of regulatory and operational expertise, our teams completed files that met with regulatory expectations and standards.

Criminals adopt highly deceptive methods of money laundering; EFI’s KYC analysts are experienced in detecting criminal activity; Please contact us to discuss your concerns.


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