On 25 July 2013, the UK’s Financial Conduct Authority (FCA) issued its first annual report on money laundering, breaches of financial sanctions and terrorist financing. The report describes the sources of money laundering risk; the FCA’s obligations relating to anti-money laundering; its approach to carrying out those obligations; how the FCA co-operates with law enforcement and other agencies; perceived levels of compliance; and the trends and emerging risks in money laundering that it is seeing in the firms that it regulates. The full report is available here.
Some points of particular interest:
- The report states that the FCA’s resources are focussed on firms particularly exposed to financial crime risk and that it seeks out firms in particular that are being used for money laundering, bribery and corruption. The intended approach is said to be “intensive and intrusive, with an emphasis on early invention and credible deterrence where serious risks are identified”.
- In addition to the self-reporting by regulated firms of a failure of money laundering controls, it is noted that intelligence is received from a range of sources including law enforcement, consumers and the press; and it is emphasised that information from whistle-blowers is very valuable, particularly in smaller regulated firms.
- Some of the most interesting comments related to perceived levels of compliance. The FCA’s conclusion is that the “level of anti-money laundering compliance in financial services firms is a serious concern”.
- This is particularly thought to be the case in relation to Politically Exposed Persons (“PEPs”). The FCA clearly perceives widespread failures to take adequate measures to establish the legitimacy of the source of wealth and funds of PEPs.
- It was noted that relationship managers were often too close to customers to take an objective view of their activities, were vulnerable to placing too much reliance on customers’ own explanations of their wealth and financial affairs, and were primarily rewarded on the basis of profit and new business, regardless of anti-money laundering performance.
- There were said to be “indications” that some banks were willing to enter into high risk relationships when there were large profits to be made, or to accept very high levels of money laundering risk if the immediate reputational and regulatory risk was acceptable.
- The root cause of these problems is said often to be a failure in governance of money laundering risk and inadequate resources.
- Emerging risks were identified as arising from e-money issuers, cybercrime, the Money Services Business sector, digital currencies and alternative banking platforms.