The past month has seen the promise of yet more developments to the UK’s ever-evolving financial and economic crime framework. In particular, the FCA has published proposed amendments to its Financial Crime Guide and the influential Treasury Select Committee has announced an inquiry into economic crime. Meanwhile, the UK’s recently enhanced economic crime toolkit is deployed and looks set to be focused on illicit wealth.
In this blog post, we pick out the key points for firms at risk of consultation overload.
Amendments to the FCA’s financial crime guide
The FCA published a consultation paper on proposed updates to its Financial Crime Guide on 27 March 2018. It proposes including a new chapter on insider dealing and market manipulation. This will outline the FCA’s observations of good (and bad) market practices to detect and prevent insider dealing and criminal market manipulation. The guidance also contains proposed amendments to other chapters in the Guide which mainly reflect recent legislative developments such as the Money Laundering Regulations 2017.
Of significance to practitioners, the FCA specifically highlights risks for firms who maintain a surveillance function separate from their anti-financial crime or MLRO functions and emphasises the importance of a joined up internal approach where this is the case. The proposed guidance also contains a number of useful pointers on maintaining effective systems and controls. For example, it suggests practical steps to deal with a client who may be trading suspiciously short of terminating the client relationship, such as limiting their ability to trade certain instruments or in particular markets, restricting direct market access or reducing the amount of leverage offered to the client.
The decision to issue specific guidance on the topic, along with the recent case of Interactive Brokers (where the FCA chose to issue a Warning Notice statement at a relatively early stage followed by the Final Notice published this January) should put firms on notice that systems and controls around insider dealing are becoming an area of focus for the FCA.
The consultation closes on 28 June 2018.
The finalised guidance (which we expect will largely reflect the draft guidance) is scheduled to be published in the autumn with a target implementation date of 1 October 2018.
Economic Crime Inquiry
The House of Commons Treasury Select Committee announced a new inquiry into economic crime on 29 March 2018. The inquiry will focus on two areas: First, the UK’s anti-money laundering and sanctions regime. Secondly, the impact on consumers of economic crime and the security of customer data. The inquiry will also consider how effective financial institutions are at combatting financial crime. The deadline for responses is 8 May 2018.
Of particular note was the decision by the Committee Chair, Nicky Morgan, to highlight in the accompanying press release the perception that the UK is a hub for ‘dirty money’. Morgan specifically cited Transparency International’s estimate that £4.4bn of UK property was purchased with what it considered to be ‘suspicious wealth’. This may well indicate where the true focus of the inquiry will be – as a wholesale review of the UK’s financial crime framework seems an unrealistically broad remit.
The timing of the inquiry is questionable to say the least. The Sanctions and Anti-Money Laundering Bill is already at an advanced stage in the legislative process. Further, within the last few months both the National Economic Crime Centre and the Office for Professional Body Anti-Money Laundering Supervision have been created. The Law Commission has been tasked by the Home Office with examining both the consent regime and the confiscation regime under the Proceeds of Crime Act 2002. Finally, the last of various tools introduced by the Criminal Finances Act 2017 have only recently come into force (see below for further details).
Why then begin an inquiry now? First, the UK’s anti-money laundering framework is due to be assessed by the Financial Action Taskforce later this year. The last assessment – in 2007 – did not give the UK an entirely clean bill of health.
Secondly, the rise of crypto-currencies and online fraud have created a need to ensure the UK framework is up to date – all the more so given future Europe-wide anti-money laundering developments (e.g. MLD5) are not guaranteed to automatically apply to the UK post-Brexit.
Finally, the inquiry may be an effort to forge cross-party consensus on reforms which appear to have stalled. In particular, a general corporate offence of failure to prevent economic crime has been mooted for some time. Attempts were made to amend both the Criminal Finances Act and the Sanctions and Anti-Money Laundering Bill to include such an offence. Both times, the Government rejected the amendments on the grounds that it was still considering the issue. There has been little visible progress since the Ministry of Justice issued a Call for Evidence on economic crime last year. A ‘failure to prevent’ offence would be one way to target perceived weaknesses in firms’ anti-financial crime procedures as it could apply to scenarios ranging from money laundering to consumers falling victim to online banking fraud.
Unexplained Wealth Orders
Last but not least, following the introduction of Unexplained Wealth Orders (UWOs) at the end of January (see our previous blog post), the National Crime Agency (NCA) has acted quickly to use them. It announced on 28 February that it had secured two UWOs (and related interim freezing orders) to investigate assets totalling £22 million that are believed to be ultimately owned by politically exposed persons. Notably, the Director for Economic Crime at the NCA has also indicated they expect around five more UWOs to be secured within the next quarter with a further one hundred cases under investigation. Firms should therefore ensure they are monitoring for such orders and take appropriate action if they receive information that a client is subject to a UWO or a related freezing order.