FCA’s latest financial crime risk
findings and further proposed
guidance
Financial Crime Forum- 4 December 2014
By Richard Bostock, FLA
What the findings cover
• How small banks manage money-laundering and sanctions riskUpdate (Thematic Review published in November)
• Managing bribery and corruption risk in commercial insurance
broking – Update (Thematic Review published in November)
• Conclusions
• Proposed guidance on financial crime systems and controls (Guidance
consultation published in November)
How small banks manage money-laundering
and sanctions risk
Key Findings:
• Follow-up work from the FSA’s AML review in 2011 to see how small banks
have responded
• Review focused on high-risk customers and PEP’s. Also considered the
adequacy of financial sanctions systems and controls
• FCA say considering the amount of work already carried out in AML they
were disappointed to find continuing weaknesses in most banks’ AML
systems and controls
• Although senior management engagement had improved, a third of banks
had inadequate resources, staff often had weak knowledge of money
laundering risks, and some overseas banks struggled to reconcile their
group policies with higher UK requirements.
How small banks manage money-laundering
and sanctions risk
Key Findings:
• The FCA make point that this review is not only relevant for banks
• The findings and examples of good practice may be of interest to all firms
within scope of our anti-money laundering provisions in SYSC 3.2.6A-J or
SYSC 6.3
• It may also be of interest to firms for whom FCA are the supervisory
authority under the Money Laundering Regulations 2007
• All firms are required to comply with the UK’s financial sanctions regime.
FCA are responsible for ensuring that the firms they supervise have
adequate systems and controls to do so
• These findings may therefore be of interest to all firms subject to the
financial crime rules in SYSC 3.2.6R or SYSC 6.1.1R
Managing bribery and corruption risk in
commercial insurance broking
Key Findings:
• Again this follows earlier FSA work in this area.
• FCA looked at intermediaries’ bribery and corruption risk assessments
and considered how this risk was controlled through intermediaries’
governance, due diligence and ongoing monitoring of individual
relationships, payment controls, recruitment and remuneration,
training and awareness, incident reporting and whistleblowing.
• Overall, most intermediaries in their sample did not yet adequately
manage the risk that they might become involved in bribery or
corruption
Managing bribery and corruption risk in
commercial insurance broking
Key Findings:
• More than half of the intermediaries in their sample had taken some
steps to assess and manage bribery and corruption risk, but for the
majority of these intermediaries, this work was still in progress and
more had to be done before their anti-bribery and corruption
systems and controls would be effective
• Again this review is not only relevant to wholesale insurance
intermediaries. All firms subject to FCA’s financial crime rules in SYSC
3.2.6R or SYSC 6.1.1R may find this useful
Conclusions
• FCA found that many small banks and commercial insurance
intermediaries fail to effectively manage financial crime risk.
• While the reviews found some firms had made good progress in
addressing areas of weakness and saw examples of good practice,
there were significant shortcomings at other firms.
• The FCA has proposed further guidance for all firms to ensure that
expectations are clear
• “Firms must take their responsibility to reduce the risk of financial
crime seriously. Significant improvements are still required in this
area”…
Conclusions
• “To do that successfully requires firms to use their judgement and
common sense. That is not about box ticking or wholesale de-risking.
It is about firms getting the basics right – understanding their
customers, the risks they pose and managing those risks
proportionately and sensibly” FCA quotes from TM, FCA director of
enforcement and financial crime.
• Despite extensive work over recent years to address key issues, there
were significant and widespread weaknesses in most banks’ antimoney laundering systems and controls, and in some banks’ sanctions
controls
Conclusions
• Although senior management engagement had improved, a third of
banks had inadequate resources; staff often had weak knowledge of
money laundering risks; and some overseas banks struggled to
reconcile their group policies with higher UK requirements.
• Overall, most intermediaries’ controls failed to manage bribery and
corruption risk effectively.
• While some intermediaries’ policies on remuneration, hospitality and
training had improved since the last review, bribery and corruption
risk assessments were often too narrow and many firms failed to take
a rounded view of the risks associated with individual relationships.
Conclusions
• Half of the third party and client files reviewed were inadequate and
senior management oversight was often weak.
Proposed guidance on financial crime systems
and controls
• In light of these two reviews FCA are consulting on updating their Financial
Crime: A guide for firms with examples of good practice
• The idea is for them to make their expectations clear
• Both reviews set out examples of good practice observed. FCA propose to
include these examples in part 2 of their regulatory guidance (Financial
Crime Guidance)
• They also propose to amend Part 1 of the Guide to clarify their
expectations in some areas where they saw significant weaknesses
persisting
• In particular, they propose to include or amend existing text boxes in
Chapter 2 and 3 on management information, risk assessments and
enhanced due diligence…
Proposed guidance on financial crime systems
and controls
• Although the reviews focused on specific sectors, FCA believe that
these amendments will help all authorised firms strengthen their
financial crime systems and controls
• It will also help firms approach financial crime compliance in a more
proportionate and risk-based way
• Responses by 6 February 2015
Key changes:
• They propose to introduce a new Box 2.1A on MI in their chapter on
Financial crime systems and controls (in Part 1 Chapter 2)- see page 45
Proposed guidance on financial crime systems
and controls
• They propose to amend Box 2.3 on risk assessments (refer to page5)
• They propose to amend Box 3.7 in their chapter on money laundering
and terrorist financing (refer to page 6). Further examples of
Enhanced Due Diligence are given
• They also propose to introduce two new chapters referring to good
practice around these two thematic reviews in Part 2