CIFAS markers – a risk to the economic recovery?

As we begin to emerge from 12 months of economic and social lockdown, the economic impact of support measures and the way in which consumers behaviour has changed are unveiling themselves.  One area where there has been an increased impact on the economy is in relation to fraud.    

What is less known is that the measures that financial institutions take to counter fraud are themselves likely to have a long term and detrimental impact on the economy. 

The scale of fraud over the past 12 months is enormous: the freeze on stamp duty led to a huge number of mortgage application frauds;  BBLS and CBILS business support measures led to an increased number of applications for business finance, with the National Audit Office reporting in October 2020 that it was concerned that as a result of ineffective controls £26 billion could be lost through fraud; furlough gave people time to explore and invest in crypto-currencies, with many falling victim to scams; and the banks themselves have come under increased pressure, with Nat West currently being prosecuted for money laundering by the Financial Conduct Authority, with the result that many banks are now actively removing customers they believe may pose a risk to their business.   

The Credit Industry Fraud Avoidance System (“CIFAS”) has admitted that financial institutions report hundreds of thousands of people a year to the National Fraud Database.  CIFAS is a not-for-profit organisation of which banks and other financial institutions such as insurance companies are members – they report, or load, information (called markers) onto the database to warn other financial institutions of customers suspected of being involved with fraudulent activity, or where they present an unacceptable risk to its business.  Those markers can last for up to six years and can prevent customers from accessing credit or banking facilities. 

CIFAS has an important role to play in countering fraud, and the banks spend huge amounts on fraud prevention (9% of NatWest’s staff are engaged in counter-fraud), but sometimes banks make mistakes in loading markers, and the consequences for innocent victims can be catastrophic. 

As many businesses have discovered to their cost, a fraud marker registered against a director should be considered a material risk to the potential survival of a business, as lending can be refused and accounts closed.  Markers loaded against business accounts apply also to company directors in their personal capacity, and can even affect associated persons.  We have previously successfully challenged markers imposed against entire boards of directors. 

Because most markers are hidden from view on credit reports, people are frequently unaware that they are loaded against them.   

In our experience the trigger for the discovery of a marker is when applications for credit are made – banks are becoming more sophisticated and risk averse, and we have seen many examples of a domino effect with entire lines of credit and multiple bank accounts being removed from customers. 

If challenges to banks are rejected, appeals can be made to the Financial Ombudsman Service which currently has a backlog of more than 12 months worth of appeals – such delays are unlikely to be weathered by many businesses during these difficult times.   

Therefore it is crucial to ensure that challenges to CIFAS markers are made direct to the organisation that loaded them, and that they are done correctly from the outset.  Such challenges are complicated requiring specialist advice – the law that relates to them is wide ranging and complex and each case will be unique.  

Our Head of Private Prosecutions, Jeremy Asher, is a regulatory lawyer with proven experience in successfully challenging such markers for company directors and individuals. Further details can be found here: https://www.msbsolicitors.co.uk/our-expertise/commercial/cifas-marker-removal/ 

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