Covid-19 recovery

We predict in 2022 there will be a significant increase in instances of fraud targeting businesses.

Why?

Many of the drivers of increased fraud during the pandemic are set to become structural. Businesses of all kinds need to become more alert and agile to deal with new and innovative forms of fraud as criminals find new opportunities in new technologies and working practices.

The COVID-19 pandemic helped fuel a massive rise in fraudulent activity – e.g.:

• 24% increase in total fraud offences reported in England & Wales in the year ending March 2021 (ONS)
• 30% increase in fraud losses reported by the UK banking and finance industry in HY1 2021 (UK Finance)

As economies recover from the pandemic, many of the drivers of the recent increase in fraud will nonetheless endure or become more prevalent. These include:

• Cybercrime, which currently accounts for more than half of all fraud in the UK (NCA) and around the globe, is expected to grow through 2022 and beyond – see our cyber fraud prediction.
• Supply chain disruption, which lays fertile ground for fraudulent activity (e.g. due to the need to fast-track new suppliers), is likely to continue into 2022.
• Economic pressures on individuals and businesses, which both provide incentives for fraudsters and hit resources available to tackle them, will endure in many areas, as evidenced e.g. by the projected rise in insolvencies - see our insolvency prediction below.
• Changing working practices, which are widely expected to transform long-term, and raise a panoply of new fraud risks (e.g. hybrid working often makes it harder for organisations to detect fraud)
• Authorised push payment scams have grown to become the most prevalent form of payment fraud exposing FIs to increased risk
• Insurance fraud is growing and evolving, in part due to underlying trends that arose during the pandemic and are expected to last – see our cyber fraud prediction.
• The insurance market is hardening against cyber cover making the risk harder to mitigate.

Prediction authors: Jon Malik, Alexandra Webster

We predict in 2022 greater numbers of team moves and more cases of employees misusing business information.

Why?

• There is a post-pandemic environment of people wanting to move: a record number of employees are leaving their current employer (or thinking about it) and employees are more tempted to leave as their options expand. This recent McKinsey report highlights a significant trend of attrition since April 2021 across all sectors.
• The shift to working from home provides employees with increased opportunities to breach restrictions and infringe IP rights, due to lack of oversight by employers. For example:
  • communication between employees is more difficult to monitor whilst working remotely, amplified by the wide variety of technologies available including Whatsapp, Skype, Slack, IM etc.
  • remote working also brings additional data security challenges: for example, employees post company documents to personal cloud storage accounts, they email company information to personal accounts and there has been a trend towards employees using their own devices (e.g. phones, laptops etc) for business purposes (BYOD) - read our Insight.

It will, therefore, be particularly important for organisations to upskill and train managers and the wider workforce on the firm’s expectations and policies in relation to the use of the business’ confidential material and IP rights. Businesses will need to be vigilant. They will also need to move quickly, if they suspect their business information is misused, to preserve valuable evidence and seek interim relief from the Court if necessary.

Specific to the financial sector, the FCA has published a statement outlining its expectations for firms considering remote or hybrid working. As well as asking firms to consider whether the new way of working remotely or in a hybrid way may affect a firm's threshold conditions, the information on the register, and the impact on their planning, the FCA have also said that they have the ability to "visit any location where work is performed, business is carried out and employees are based (including residential addresses) for any regulatory purposes".

Prediction authors: Priya Nagpal, Andrea Finn, Jemima Coleman

We predict in 2022 the crystallisation of significant numbers of insolvency disputes that have been brewing over the last 2 years. However, with that will come a greater call for parties to compromise on those disputes than ever before.

Why?

The temporary insolvency measures in the Corporate Insolvency and Governance Act 2020 (“CIGA”) have kept insolvencies and proceedings concerning disputed debts artificially low during the pandemic. In fact, where forecasters had predicted a “tsunami” of insolvencies for 2021, we have instead seen a decline. A success for the government?

We say no; the measures have likely created more zombie companies than ever before. They can keep borrowing easily accessible cash but stand little chance of ever paying off their debt. That will eventually implode as financial institutions stop playing quite so nicely and either sell debts to enforcement driven institutions or take a more aggressive enforcement stance themselves.

Trade credit insurers are predicting an increase in business insolvencies in the UK of up to 33% on pre-pandemic levels and with that will come disputes. However, we do not expect the Courts to be receptive to disputes about post-COVID debt which ought to have been capable of settlement out of court.

In particular, the recent amendments to CIGA (covering 1 October 2021 – 31 March 2022) now allow statutory demands and winding up petitions to be brought but only where a notice is given first which invites proposals from the debtor to the creditor’s satisfaction. We anticipate Courts being reluctant to grant a winding up order where those proposals were reasonable in the circumstances. Landlords must still be able to demonstrate that coronavirus is not the reason debts remain unpaid – a tall order in many situations.

The likely busyness of the Insolvency and Companies Court (there is already a wait of 6 months for a non urgent 1 day hearing) will also act as a further prompt for parties to settle.

Of course it remains open to creditors to pursue the court claim route (as opposed to the petition route) but other divisions of the Court will likely require (through delays and the imposition of costs orders) the same reasonableness of parties where open and sensible proposals have been made in advance to settle debts.

Prediction authors: Kirsten Kitt, Elizabeth Mason