FCA's 23/24 Focus: Combatting Financial Crime and Enhancing AML Measures

One of the Financial Conduct Authority's main commitments for 2023/24 is “reducing and preventing financial crime.” To support this, it is developing data-led analytical tools to use in its anti-money laundering supervisory work, as well as increasing its proactive assessments of firms’ anti-money laundering systems and controls.

The aim is to ensure market stability, which can be seriously upended by criminals seeking to use legitimate financial services firms to hide the proceeds of crime.

With AML so high on the FCA’s agenda, its most recent major fine shows that the consequences of failing to adequately control AML risk is high.

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The firm – ADM Investor Services International – was fined just under £6.5million following repeated reviews by the FCA, and repeated failures of ADMISI to shore up its customer risk assessment, to properly monitor AML risk, or to update its policies.

The FCA’s rules – alongside other legislation such as the Money Laundering Regulations – mean that firms must adopt a risk-based approach to the management of money laundering risk. In practice, firms must understand what risks are likely given their firm type and nature of business and must then design systems which properly mitigate that risk. Firms must monitor their systems and controls regularly, to ensure they continue to work and are appropriate to the actual risk.

For the previous five years, financial crime fines have made up a sizable percentage of the total imposed during any 12-month period. In 2021, they made up 85% of the total fines.

Repeat offences often lie at the bottom of the FCA’s concerns. In the case of ADMISI, the FCA had flagged the informality of its risk management processes and that its risk management framework and three-lines of defence model were ineffective. The FCA found that there was no process to classify clients according to money laundering risk. It put ADMISI ‘on notice’ in March 2014, explaining the improvements it expected to see.

Two years later, the FCA revisited and found that some failures remained from the earlier assessment and that corrective work had been inadequate. In particular, the client risk assessment was too basic, not fit for purpose and was rarely used in practice. Monitoring activities weren’t determined by the risk rating of a customer, but by trigger events. During that 2016 review, the regulator found new and more systemic failures, including failing to conduct a firm-wide money laundering risk assessment, and the policies that did exist were outdated and referred to repealed legislation.

Most FCA findings of breaches related to the risk of financial crime stem from persistent systems and control failures – particularly when these occur for months or years. In almost all enforcement cases, the FCA found evidence of a failure to complete appropriate due diligence, to monitor effectively, or failures to properly examine customer backgrounds and documentation.

The importance of training staff on AML and financial crime requirements is often overlooked. Even where systems and controls and policies and procedures are in place and watertight, if staff on the ground are not familiar with them or with putting their essentials into practice, then this will have a significant impact on the effectiveness of your firm’s AML and financial crime defenses.

Our online AML and Financial Crime training course takes learners through the basics of Anti-Money Laundering and Financial Crime, covering types of crimes, responsibilities, legislation, fraud and AML expectations, due diligence, reporting and recording. Each online course, priced at just £20, is accessible at the delegate’s convenience, and provides a certificate upon successful completion, allowing firms to track and record each user’s progress.

For large groups, we can offer a simplified enrolment service and pricing, simply email Robert.bell@rbcompliance.co.uk.