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FCA’s Anti-Money Laundering Report highlights focus on firms’ financial crime controls

The Financial Conduct Authority (FCA) published its annual Anti-Money Laundering Report on 19 July 2018, for the year ended 31 March 2018.

In the report, the FCA reminded firms that due to the size and global nature of the UK financial industry, financial crime and AML remains a significant risk and is therefore one of the FCA’s key priorities.

In the publication, the FCA reported on key policy developments over the year. These included:

  • The implementation of the fourth anti-money laundering Directive (“4AMLD”) in the UK;
  • The FCA consulting on and updating their guidance to reflect these changes in March 2018;
  • The FCA publishing guidance on how firms they supervise that are subject to the Money Laundering Regulations should treat customers who meet the definition of a Politically Exposed Person (PEP);
  • How firms can use technology to help comply with their obligations; and
  • In March 2018, assessors from the Financial Action Task Force (FATF), the global standard setting body on AML, visited the UK to inspect the adequacy of the UK’s AML regime, including the FCA’s work. The FATF’s final report is likely to be published towards the end of 2018.

The most significant reporting issue was the implementation of 4AMLD, which was introduced on 26 June 2017. This Directive brought in changes concerning, amongst other things, guidance on the treatment of politically exposed persons. Ten years ago, in 2007, when the last significant round of changes were made to anti-money laundering regulations, enforcement action was a common occurrence for firms who were too slow to implement the changes. In this report, it appears the FCA is taking a similarly robust stance.

The FCA reports that it continues to see serious AML deficiencies in firms (particularly in smaller overseas banks). The most common failure identified is the lack of effective due diligence. This in turn leads to the poor monitoring of customers flagged as high risk. The FCA confirmed that around 75 firms and individuals in the UK are currently being investigated for anti-money laundering failings. Anecdotally we are seeing extensive FCA engagement, both at the enforcement investigation stage and via supervisory contact and skilled person reviews.

Another change in the FCA’s approach to AML is to broaden the scope of firms that the FCA inspects. Previously the FCA has focussed its attention on firms which it viewed as presenting the most significant risk. The FCA has now said that going forward it will be using financial crime data (which some 2,000 firms have been required to submit to the regulator for the past 2 years) to decide which firms have the highest risk in breaching money laundering regulations. This new approach is increasingly apparent from the range of firms we are seeing facing FCA engagement on AML issues. The FCA reported that this data showed that 922,544 internal suspicious activity reports were reported within firms during the financial year ended 31 March 2018.

With the change in approach and a robust stance in dealing with firms too slow in implementing changes, the underlying theme of the report suggests that AML and financial crime is a higher priority for the FCA than ever.

The full FCA report can be found here: https://www.fca.org.uk/publication/corporate/annual-report-2017-18-anti-money-laundering.pdf

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Partner

Chris Webber specializes in resolving financial services disputes and regulatory investigations. He represents clients including banks, broker dealers, corporate trustees, bondholders, issuers, mortgage servicers, borrowers, insolvency office-holders, regulatory bodies, investment funds, and individuals. He also acts for corporate clients in contractual, investment, and shareholder disputes.

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