COVID-19: Dealing with fraudulent applications for the Bounce Back Loan Scheme

By Ed Lloyd, EVP Global Head of Sales, Encompass

The COVID-19 pandemic is still having a devastating impact on businesses and the economy in the UK, and access to funds, loans and financial schemes remains a top priority for business. In many cases, this kind of support is what has helped businesses to stay afloat so far.

The Coronavirus Bounce Back Loan Scheme (BBLS) is just one example. Announced in April, it was designed to help small firms unable to access other forms of support survive the crisis by providing quicker access to funds, through a number of accredited lenders across the UK, with the government, at the time, providing guarantees around the repaying of agreed loans, provided they were evidenced to be legitimate

However, since then, the scheme has been plagued by fraudulent applications, with opportunistic criminals seizing the opportunity to strike. As a result, it has been estimated that up to 60% of the loans may never be repaid, with the National Audit Office (NAO) saying taxpayers could lose as much as £26bn, from fraud, organised crime or default.

Bounce Back Loan Scheme corrupted by fraud

Since the Chancellor extended all connected loans, with businesses now having to pay loans back in January, there have been rising concerns about the potential risks. As mentioned, the scale of fraud has been significant, with criminal gangs exploiting the situation.

And, during this time, we have seen that false applications in the UK have gone almost entirely unreported, with less than 0.5 per cent of the expected cases being flagged to the police. The latest figures from the national Action Fraud service show that only 176 reports of fraud citing a government-backed lending scheme have been received this year, which is extremely concerning. Of these, 95 were crime reports, detailing offences that had taken place, and the remaining 81 were information reports, about attempted crimes. However, the National Audit Office reported that the Bounce Back Loan Scheme alone had delivered £36.9bn to more than 1.2 million applicants.

Even the Cabinet Office has warned that fraud losses from these loans were likely to be significantly above the norm – suggesting at least £1.85bn had been claimed dishonestly

The impact this issue is having on businesses and businesspeople alike cannot be underestimated, as the government refuses to pay back any fraudulent loans, and victims are even having to fight to prove they did not make loans applications.

We are now a matter of weeks away from when businesses will have to begin to repay banks, and they are finding themselves under increasing pressure. A particular concern is that, because of the high levels of fraud in applications, some of the money used to pay back loans may be the proceeds of crime – and banks need to be able to identify this risk.

To do this properly, it is likely they would have to conduct Know Your Customer (KYC) activity on loan beneficiaries again, and to a higher standard than before, in order to ensure dirty money is not flowing into their institutions. We know current manually driven KYC processes are not time effective and they would struggle to do this correctly in the timeframe as a result.

How are criminals doing it?

Lenders have been under pressure from the government to approve these loans within 48 hours, which doesn’t give them the time they require to conduct the level of KYC checks and measures needed to identify any risks or fraudulent activity. This problem is exacerbated by the high level of demand for the scheme – and, worryingly, there is just no telling how many of these applications are indeed fraudulent.

The Solution

Whilst it is true that the entire process needs a head-to-toe structural review, there is one core topic that must be highlighted here, and that is the benefits of RegTech.

RegTech, and specifically intelligent process automation, allows banks to perform comprehensive due diligence checks in order to make sure a company, or individual, is who they say they are, and this can be vital in helping businesses cope in times of  unprecedented demand, when they are working to tight deadlines.

It can take the burden away from analysts within the banks by doing the heavy lifting when it comes to carrying out proper KYC due diligence, ensuring an efficient and effective process. The right software should also be able to provide corporation dates and financial audits, as well as spot and flag suspicious applications, history, or activity.

We cannot forget that COVID-19 has led to a dramatic increase in other forms of financial crime, with many criminals using its guise to trick unknowing consumers into sophisticated cyber scams, which have been designed to look like legitimate government schemes or financial aid services. What’s more, the increased pressure on banking services means the fight against fraud and money laundering in the UK has become more important but, in many ways, more challenging. Financial services institutions must ensure they invest in trustworthy and secure onboarding processes if they are to have a truly meaningful KYC programme.

It is crucial that they make use of the solutions at their disposal to ensure swift approval and compliance, and avoid falling foul of regulation. Using advanced technologies such as automation is a solution to a significant problem, and its importance is only underlined during these times of pressure and uncertainty.