The Financial Conduct Authority (FCA) has recently released a consultation paper (CP), CP24/9 (CP), proposing updates to its Financial Crime Guide (Guide). This publication reflects the FCA’s ambition to reduce financial crime, its commitment to enhance understanding of the FCA’s expectations and to provide clear and actionable guidance to firms in combating financial crimes.
Key Proposals in the Update
- Sanctions: Following Russia’s illegal invasion of Ukraine in 2022, the FCA has thoroughly evaluated firms’ sanction systems and controls and is planning to revise this section to incorporate the insights gained from both the FCA’s and the firms’ experiences. The CP outlines the FCA’s expectation that supervised firms should notify it if they are subject to sanctions, whether these sanctions apply directly or indirectly, as per Principle 11. Additionally, since firms must report major rule violations to the FCA, the CP suggests that firms should evaluate if breaches of sanctions, due to significant failings in their systems and controls for preventing financial crime, should also be reported to the FCA.
- Proliferation Financing: The FCA is looking to expand the existing guidance to introduce new sections addressing proliferation financing (PF) and to ensure it is in line with the 2022 amendments to the Money Laundering Regulations (MLRs) which mandates that firms carry out PF risk assessments.
- Transaction Monitoring: Updates to the Guide aim to offer enhanced insights on implementing and monitoring transaction monitoring systems, emphasising the role of adopting innovative technologies such as AI in supporting effective monitoring practices. The revised Guide will require companies to more rigorously assess the suitability of employing sophisticated analytical instruments to manage the increasing quantity and complexity of financial transactions. Moreover, it will require that firms prove their grasp of the monitoring’s effectiveness, particularly in the context of adopting novel technologies on digital platforms.
- Cryptoassets: The FCA proposes to make clear references within the Guide that cryptoasset firms should consult the Guide. The amendments to the Guide incorporate references of the travel rule within the existing segment on customer payments. Furthermore, the Consultation suggests enhancing the sections concerning risk evaluation, management of elevated risk scenarios and fraud. It also integrates observations of effective and ineffective methods observed in the application of blockchain analytics for the surveillance of transactions.
- Consumer Duty: In recognition of the evolving financial landscape, the FCA proposes to clarify within the Guide that firms should evaluate if their systems and controls are adequate and whether they meet their responsibilities under the Consumer Duty.
- Consequential Changes: The FCA intends to make consequential changes throughout the Guide, reflecting the post-Brexit regulatory environment and updating expired links and refreshing case studies to include recent enforcement actions.
Who should read this Consultation Paper
CP24/9 is relevant to all FCA Financial Crime supervised firms, and those firms under the MLRs, including cryptoasset businesses. It also holds value for individuals and organisations working with regulated firms and trade associations, as well as any other parties interested or involved in financial crime prevention.
Important to note is that the FCA emphasises that the Guide and its proposed changes do not impose new requirements but seeks to help firms assess and enhance their financial crime systems and controls. The FCA encourages firms to use their judgment in applying the guidance to ensure effective financial crime prevention measures are in place.
Next Steps
Stakeholders are invited to submit their comments on the consultation questions by the 27th June 2024. Following the comments and feedback, the FCA plans to publish the final amended text of the Guide in a policy statement.
The proposed updates to the Guide are a testament to the FCA’s proactive stance on financial crime prevention. By clarifying expectations and embracing technological advancements, the FCA aims to foster a robust regulatory framework that keeps pace with the dynamic nature of financial crime risks.
How Complyport Can Help
Complyport is a market-leading consulting firm supporting the UK financial services industry for over 22 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Our expert financial crime team is able to assist your firm in developing and implementing robust and proven financial crime prevention controls and frameworks. In line with the proposed changes to the Financial Crime Guide, Complyport can assist you to develop and enhance your financial crime systems to ensure resilience against potential financial crime risk.
Complyport can conduct an audit of your firm’s sanctions framework, reviewing your systems and controls to ensure they are understood, fit for purpose and relevant to your business.
Complyport can help with
- Partnering with our affiliated regulatory reporting technology provider MAP FinTech to automate the reporting required under EMIR REFIT, MIFIR and SFTR;
- This is a seamless processing via award winning Polaris technology to efficiently and effectively meet demanding reporting requirements;
- Transaction data received on our Polaris platform is processed, enhanced, validated and subsequently submitted in the format prescribed by the TR, ARM, and/or NCA;
- A team of specialists will setup the service and provide training on extracting the specific and relevant data needed;
- You will have access to our Polaris portal dashboard to control, manage and monitor transaction reporting across multiple jurisdictions and transaction reporting requirements for EMIR, MiFIR, & SFTR reporting channels all in a single platform;
- Other technology reporting solutions include: ASIC, MAS, Canada, FATCA, CRS, DAC6 Reporting; and
- Other technology monitoring solutions include: Best Execution Monitoring, Trade Surveillance/Market Abuse Monitoring, KYC & AML Transaction Monitoring;
- We support our technology with a team of regulatory consultants, who will:
- Offer advice on policies, controls and procedures relevant to transaction and trade reporting;
- Offer customised health-check reviews to ensure compliance with transaction reporting and monitoring requirements;
- Assist with structuring and carrying out proper reconciliations;
- Advise on reporting errors and omissions and setup a remediation plan; and
- Devise and recommend tailored and practical solutions to support your business.
With our expert and skilled support, our team can help you effectively mitigate the adverse effects of internal and external financial crime activity.
