The FCA Reinforces Message – AML Systems and Controls must be “purposeful”

In a speech by Mark Steward, Executive Director of Enforcement and Market Oversight on 24 March at the AML and ABC Forum, the FCA has further reinforced its role in policing firm’s Anti Money Laundering (AML) systems and controls. The FCA will not hesitate to use its criminal, civil and regulatory powers where appropriate.

The FCA views firms systems and controls as a key line of defence in reducing any AML risk. However, systems and controls must be purposeful. It is important that firms carry out detailed risk assessments and put in place procedures which are commensurate with the particular AML risk faced by the firm. Use of standardised policies and procedures may not be sufficiently robust to meet this standard.

“Systems and controls that are purposeful, efficient and courageous in identifying suspicious activity are vitally important; systems and controls failures, on the other hand, provide an invisible, illicit cover for criminals and criminal activity that affects the whole community, not only in this country but also beyond, and can erode confidence in the financial system.”

The FCA has prioritised AML as a key focus:

• Two of the FCA’s biggest sanctions in the last 12 months related to failures to address financial crime and AML risks.
• The FCA currently has 42 investigations ongoing into firms and individuals involving, for example, systems and controls over politically exposed persons, customers with significant cash intensive operations, correspondent banking and trade finance, and transaction monitoring.

Whilst the FCA has only used its criminal powers in one case to date (and there are clear reasons why it was appropriate to do so in the particular case) the fact that the FCA has 42 live investigations clearly indicates the importance and the regulatory focus which is being applied to AML systems and controls. Firms should take note.

The FCA also identified two key emerging AML risks:

1. the use of investment promotions targeting offers from unauthorised firms, potential investment scams and other too good to be true promotions, including lead generation sites. The FCA has increased its surveillance of its perimeter in the last 12 months; and
2. the rise in the use of cryptocurrency firms. Whilst these are not regulated by the FCA, they are required to be registered with the FCA for the purpose of AML.

Where firms fall outside of the regulatory regime the FCA will look to use its civil and criminal powers.

Only last week the FCA issued its Policy Statement (PS21/4) on extending its financial crime reporting requirements to all firms that hold client money or assets; or carry on regulated activities that are considered to potentially pose a higher AML risk, irrespective of a firm’s revenue; along with a list of specified businesses (ie cryptocurrency / payments services firms). This is likely to mean that the number of firms who will have to submit the financial crime report is likely to increase from 2,500 to 7,000. Another indicator that the regulator is placing significant importance on systems and controls and the ability of firms to monitor its AML risks appropriately and submit accurate reports / information about those risks to the FCA. The FCA is likely to be scrutinising the information it receives.

Taking into account all of the above and the fact that the FCA recently commenced its first criminal prosecution against a regulated firm, there is clear evidence that the FCA has got its teeth into AML. Confirmation that the FCA currently has 42 ongoing investigations further reinforces the message that firms may well be asked to demonstrate to the FCA that they not only have the systems and controls in place but that these are meaningful and adequate to mitigate any AML risk posed by the particular firm. Firms should ensure that their risk assessments are up to date and that they fully understand any financial crime risks posed by its business activities; policies and procedures are properly documented, adequate and meaningful; staff are adequately trained and have a full understanding of the policies and procedures in place.

Firms should take note. AML is high on the FCA’s radar!