Financial Crime – A Guide for Firms

Background

The FCA has published a revision to “Financial Crime: a guide for firms”, effective from 27 April 2015. The amendments come against a backdrop of two thematic reviews published in November 2014 into Anti-Money Laundering (AML) and Anti-Bribery and Corruption (ABC). Whilst the reviews targeted small banks and insurance brokers respectively, the subsequent consultation makes clear that the amendments will be of assistance to all authorised firms in their approach to financial crime compliance.

Why does this Matter?

Despite the regulator’s continued interest in AML and ABC, the reviews found significant and widespread weaknesses in AML systems, and that bribery and corruption risks were not being managed effectively. The FCA’s business plan for 2015 makes clear that financial crime is still very much on the agenda; including it as one of their top seven risks. There are some basic steps that firms can take to protect themselves, and the revised guidance provides practical ideas that will help demonstrate that you are taking it seriously and have financial crime risk under control.

Financial Crime: A Guide for Firms

“Financial Crime: a guide for firms” is a FCA publication that provides guidance on the steps a firm can take to reduce the risk that it might be used to further financial crime. It is split into two parts, both of which can be found here. Part 1 provides practical assistance and information to firms, with Part 2 focusing on past Thematic Reviews and examples of good and poor practices.

The FCA guidance covers all manner of topics under this umbrella, and your assessment of financial crime risk should go beyond AML & ABC; the FCA’s guide is a useful start.

What are the Changes to the Guidance?

Management Information

Compliance often involves the provision and consideration of good management information; without gathering information, management is assumed incapable of making informed decisions about related issues or concerns to the business. Helpfully the amendments contain examples of financial crime Management Information that could be obtained.

With the Fourth Money Laundering Directive on the horizon, firms should pay particular attention to the need to obtain management information in relation to regulatory updates. Please see our summary of the Fourth Money Laundering Directive here.

Risk assessments

Central to the FCA’s approach to financial crime is to encourage firms to implement proportionate and effective systems and controls in a risk-based manner. To assist firms, the risk assessment guidance has been supplemented with information on business-wide assessments as well as risk assessments in relation to individual relationships. As before, there is a list of self-assessment questions firms will find useful in designing and carrying out their risk assessments.

Handling higher-risk situations

Further detail has been provided in respect of handling higher-risk situations. The guidance clarifies that the extent of enhanced due diligence must be commensurate to the risk associated with the business or occasional transaction. Practical examples of enhanced due diligence are now helpfully included.

‘Source of Wealth’ and ‘Source of Funds’

As part of customer due diligence, firms may have to establish that the ‘Source of Funds’ and ‘Source of Wealth’ involved in a business relationship or occasional transaction are legitimate. The definitions of both terms have been clarified. Whilst ‘Source of Wealth’ describes how a customer or beneficial owner acquired their total wealth, ‘Source of Funds’ is concerned with the origin of the funds involved in the business relationship or occasional transaction.

Additions to sectoral guidance

Part 2 of the guidance has seen the insertion of two new chapters to reflect the findings in the thematic reviews referred to above.

Both provide examples of good practice covering a number of topics including management information; governance structures, culture and tone from the top; risk assessments; enhanced due diligence; enhanced ongoing monitoring; sanctions; training and awareness; and payment controls.

Conclusions

The updated guidance is a welcome introduction and will be of assistance to firms as policies and procedures need to be reviewed.

It demonstrates that financial crime continues to be a priority for the FCA, and it is clear from last November’s Thematic Reviews that weaknesses continue to be identified in this area.

Firms should not be complacent about their risk and exposure to financial crime and should ensure they go beyond AML & ABC to consider other financial crime risks including fraud; dishonesty; embezzlement; market abuse; data protection and cyber security.

Complyport is available to assist firms in completing a financial crime risk assessment so that they can feel assured about how best to deploy resources and protect their business. For further information please contact +44 (0)20 7399 4980  or email info@complyport.co.uk.

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