Fighting financial crime from the point of view of the FCA

Fighting financial crime underpins the FCA’s priorities and it is taking action at pace on areas from spotting sanctions-busting to driving improvements on money laundering controls and raising consumer awareness.

At the Financial Crime Summit – 1LOD on 7th September 2022, Sarah Pritchard, Executive Director, Markets, of the FCA delivered a speech on fighting financial crime in relation to the force multiplier effect. In that speech, Ms Pritchard set out the strategy of the FCA when responding to financial crime related matters, what it expects of professionals in the industry and identified security shortcomings. Below are the main discussion points:

First responders

Technology has made leaps and bounds in terms of spotting scams, detecting fraudulent transactions, and applying smart and automated data sourcing to set up effective remediation processes. That being said, people still have to do most of the heavy lifting.

Skilled, trained and educated employees are vital to a firm as they ‘man’ the front lines in the fight against financial criminals. Those seeking to carry out financial crime will adapt to exploit new weaknesses in the financial system and will constantly vary their tactics when targeting the vulnerable. Financial services personnel in these front line positions will be the ones that spot how criminals are changing through identifying unusual transactions or detecting new criminal activity trends through examining customer outcomes.

All hands-on deck

Curtailing and hindering the efforts of criminal actors, can only be accomplished as a result of a range of coordinated actions and efforts, in the form of agile and dynamic responses. Additionally, the best way of getting ahead of this new wave of financial crime is through being alert and through joined up action and joined up intelligence.

That is how you defeat a complex and ever-evolving enemy. No one group can do it on their own and the constantly mutating threat of financial crime can only be countered by adaptive measures and groups. The Executive Director of the FCA stated that seven in ten people had been  targeted by scams in the past three months and highlighted that they expect financial crimes to become even more prolific during the cost-of-living crisis.

Force multiplier effect

No one is unaffected by financial crime and in order to limit and defeat it, systemic responses and effective defences are needed.

The FCA relies on:

  • Professionals in firms scanning and being alert to red flags
  • Staff using their human knowledge and instinct to interpret the clues from conversations and ‘customer’ behaviour;
  • Latest technology identifying unusual patterns of activity;
  • Information shared with regulators, and law enforcement.

Collective efforts from all actors in the industry are needed to keep the system healthy.

The FCA is changing by:

  • Discharging their tools more rapidly, driving improvements in firms’ controls and issuing warnings where harm is identified as well as quickly flagging up names on warnings and getting behind fraud awareness campaigns.
  • Sharing more examples of good controls and bad controls – so that everyone can learn and improve their responses.
  • Sharing findings from recent reviews of challenger banks
  • Alerting firms to system weaknesses that could be exploited – such as weak customer due diligence and insufficient rigour in dealing with transaction alerts.

Furthermore, the FCA mentioned positive risk mitigation measures seen in practice including:

  • Using data, tech, and geolocation data to verify customer identity quickly
  • Advanced monitoring for fraud by checking customers who were using multiple devices to log into accounts.

All firms are urged to embed financial crime checks in their systems from day one and keep evolving and adapting these systems as the threats evolve. Recalibrating the system defences and alerts might require putting data and technology to use so firms need to allocate the appropriate resources to manage that.

Robust defences and actions

  • The FCA has taken decisive steps to set robust standards for crypto firms on anti-money laundering measures, knowing that this sector is targeted as a potential weak link, and open for abuse by criminals.
  • So far 37 firms have met these standards, but they will need to continue to meet those standards to keep their registration.
  • The closures of crypto ATMs which were opening without regulatory permission was ordered.
  • Major banks including, NatWest, were prosecuted for money laundering system and control failures. Since 2018, ten other firms have been fined for weaknesses in money laundering prevention controls , with these fines totalling over £665m.

Thinking ahead

Foiling crime is about thinking ahead and acting at pace before threats increase exponentially.

For example, ongoing sanctions work remains important to the FCA, and it can only be successful by using data and intelligence to identify firms with potential weaknesses in controls, and then using data tools to test the effectiveness of those firms’ sanction screening systems.  Consequentially, a firm’s sanction screening process, needs to be tailored and suitable for each firm’s customer and business profile.

The FCA has a unique role in this. By working with government partners – the Home Office, Treasury, National Economic Crime Centre (NECC) and National Crime Agency (NCA), international regulators, and industry alike, the FCA want to test how financial services and other sectors can share data and analytics in real time, and how to spot criminal activity at its source.

The fight against financial crime should not be lonely

A whole system response is required to effectively limit the threat of financial crime, which should never be left to one body or one team or one person within an organisation. It takes action and vigilance across all sectors in the UK, from the Home Office, to the NECC, the NCA, the Treasury, other regulators, as well as partners in the private sector, who are the FCA’s eyes and ears on the ground.

It is that partnership between firms, regulators, and government, that holds the key to a bigger force multiplier effect that leaves consumers more secure and confident, boosting the health and reliability of the financial systems and economy.

Anti-Financial Crime Support – How can Complyport Help?

Our experienced Financial Crime and Forensics team led by Martin Schofield—one of the world’s leading specialists in the field—brings a wealth of experience to every project we are engaged in. Our highly experienced financial crime professionals and forensic experts, in subjects such as anti-money laundering, counter terrorist financing, anti-bribery and corruption and fraud and regularly help our clients navigate the complexities of the financial crime and money laundering environment. Services offered by Complyport include:

  • AML/Fraud policy & training reviews,
  • Transaction monitoring / reporting framework reviews,
  • Vulnerable Customer Management framework reviews/audits/gap analysis,
  • Financial crime health checks and audits,
  • Implementation of financial crime, AML, CTF, ABC, Fraud and market abuse controls and frameworks,
  • Ongoing advice on financial crime, AML, CTF, market abuse and fraud prevention,
  • Authoring/reviewing financial crime policies,
  • Outsourced MLRO support
  • Outsourced KYC and CDD support,
  • Assistance in identifying Politically Exposed Persons (PEPs),
  • Assistance in navigating international sanctions,
  • Support with preventing market abuse and insider dealing,
  • Expert Witness in Financial Crime cases
  • Forensics and Investigations
  • Design and/or delivery of online or face to face financial crime training

If this article has raised any questions, or you think your firm may require assistance, please contact either Martin Schofield via martin.schofield@complyport.co.uk or Jonathan Greenstein via jonathan.greenstein@complyport.com to book in a free consultation.

About Complyport

Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.

Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.

With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.

Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.

Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Complyport can also assist firms by providing personnel to cover all the key compliance functions including resourcing individuals to be registered as your Compliance Oversight Function (SMF16) and/or Money-Laundering Reporting Officer (SMF17).

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