Financial Crime Controls in Corporate Finance: FCA Survey Highlights Sector Weaknesses 

As part of its five-year strategy to combat financial crime and raise industry standards, the Financial Conduct Authority (FCA) recently carried out a survey of 270 corporate finance firms focused on financial-crime oversight. The review aims to help firms benchmark their controls and build on reforms to the Appointed Representatives (AR) regime, which introduced stricter oversight and reporting requirements in December 2022.  

Positive Practices Identified: 

The FCA identified sevral of good practices emerging among respondents: 

1. Regular updates to business-wide risk assessments to reflect new and emerging threats. 
2. Effective use of detailed Management Information (MI) to enhance financial crime controls. 
3. Strong senior management involvement, with 97% of respondents reporting financial crime concerns regularly at a senior level. 

Key Weaknesses Identified: 

Despite these positives, the survey also revealed significant control weaknesses, especially given that corporate finance firms sit at the intersection of capital markets and are exposed to money-laundering, fraud and market-abuse risks. 

1. Up to two-thirds of firms not required to submit a financial crime return may be falling short of the requirements under the Money Laundering Regulations 2017 (MLRs). 
2. 11% of respondents reported having no documented business-wide risk assessment, a fundamental requirement under Regulation 18 of the MLRs. 
3. 10% of firms stated they did not retain documented evidence of Customer Due Diligence (CDD), breaching requirements under Regulation 40. 
4. Among principal firms, 29% reported not conducting financial crime risk assessments for their appointed representatives, which falls short of expectations under SUP 12.6.1R of the FCA Handbook. 
5. 6% of principal firms indicated that they did not monitor their ARs’ compliance with financial crime obligations, including the lack of on-site visits or audits, which contravenes expectations set out in SUP 12.6.4G.  

Implications for Financial Crime Teams 

Key actions for compliance professionals to  consider include: 

1. Review and update: your business-wide financial-crime risk assessment, ensuring it is genuinely risk-based and reflects emerging typologies. 
2. Audit your CDD documentation and retention processes: ensure files are complete, retrievable and consistently applied. 
3. Strengthen oversight of ARs: ensure risk assessments, active monitoring, on-site checks and clear governance are in place. 
4. Promote senior management engagement: financial crime risk data should be visible at board level, with clearly defined reporting and escalation processes. 
5. Remain vigilant to emerging threats: such as sanctions evasion, market manipulation, cross-border fundraising and other high-risk activities associated with corporate finance. 

Rising Regulatory Expectations 

Under the Money Laundering Regulations, firms must maintain up-to-date, documented business-wide and customer risk assessments and perform ongoing monitoring of client relationships. The FCA’s enhancements to the AR regime in December 2022 introduced stricter oversight and reporting requirements for principal firms and their ARs. 

As Andrea Bowe, Director of the FCA’s Specialist Directorate, emphasised, firms operating in corporate finance “must have strong, proactive controls in place”. The FCA has confirmed that it will write to firms with identified weaknesses, setting out the improvements required to address control deficiencies. 

The message is clear: basic compliance is no longer sufficient. Firms must demonstrate a comprehensive understanding of their risk exposure, implement evidence-based controls and maintain active oversight to protect their business and uphold the integrity of the UK financial system. 

How Complyport Can Help 

At Complyport we support firms in navigating the increasingly complex compliance environment: 

1. Regulatory guidance: Expert advice on the practical application of FCA and MLR requirements. 
2. Ongoing support: Keeping your firm ahead as regulation and enforcement expectations evolve. 
3. Compliance documentation: Review and enhancement of policies and procedures, including AML frameworks and AR oversight protocols. 
4. Training: Targeted training on financial crime risks and control best practices in the corporate finance context. 

Contact us today to book a meeting with one of our Subject Matter Experts. 

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