The Financial Conduct Authority’s (FCA) statement of priorities for the coming year – FCA Business Plan 2019-20 – is set squarely in the global context of the UK’s withdrawal from the EU, and the way technology is changing how financial firms do business and consumers engage with their financial decisions.
Nevertheless a number of familiar core themes and cross-sector priorities remain, in particular the frequently proclaimed fight against economic crime and the ambition to ensure that the UK financial sector is not used as a vehicle to facilitate financial crime. Under the priority of financial crime (fraud & scams) and anti-money laundering (AML), the FCA states: “Our aim is to stop the UK financial sector being used to facilitate financial crime, which undermines the integrity of financial markets and causes wider harm to society”. The Business Plan headlines its current plan to achieve these objectives.
Focus on anti-money laundering (AML)
Strengthening the UK’s approach to AML was one of the key areas of work for the FCA in its last annual report published in July 2018 [see The FCA Annual Report 2017-18: Anti-Money Laundering takes centre stage], and many of the themes, language and objectives are repeated in this most recent report. However, as reported in the media the FCA has faced criticism from politicians and commentators as it is yet to deploy its criminal powers (FT.com 5 April 2019). This latest confirmation of AML as a top priority together with some tough talking from the regulator may signal that the FCA is ready to use its criminal powers for the appropriate case or target.
Working closely with other UK and international agencies
The FCA will “continue to use every tool we have to combat financial crime” but it also recognises that particularly for money laundering, a multi-agency and multi-national response is needed. Therefore the FCA will engage closely with the Government, the Financial Action Task Force (FATF), other enforcement agencies, regulators and firms to share intelligence and respond to both old and new threats.
This chimes with a number of other cross-agency initiatives, including the National Economic Crime Centre which was established in November 2018 and the Economic Crime Strategic Board which was launched in January 2019. See our related blog Working in Partnership: a new public-private approach to tackle economic crime. The FCA is a key player in both of these projects.
Indeed, the sharing of information within the regulated sector was further facilitated by the Criminal Finances Act 2017 which included provisions which allow banks and other businesses in the regulated sector to share information with each other on a voluntary basis in relation to a suspicion that a person is engaged in money laundering or terrorist financing offence. These provisions allow information sharing to be instigated either by a regulated sector entity or the NCA, where such a disclosure will or may assist in determining any matter in connection with a suspicion that a person is engaged in money laundering.
The theme of cooperation between agencies and between the public and private sector in the financial market is currently being observed elsewhere, for example GCHQ head, Jeremy Fleming recently confirmed that the agency is sharing intelligence with banks to enable real-time customer alerts, as part of a number of initiatives coordinated by GCHQ’s National Cyber Security Centre (NCSC).
Using data and intelligence
The FCA seeks to be “faster, smarter and more efficient” in the delivery of its anti-money laundering work, using intelligence and data. By doing so it hopes to “pursue the highest-risks, leading to better and swifter coordination”.
Historically the FCA gathered financial crime information through ad hoc requests, however this changed with the publication in 2016 of the financial crime return policy (or REP-CRIM) which requires relevant firms (broadly those subject to Money Laundering Regulations who reach a revenue threshold) to provide information about financial crime in a standardised format. In November last year the first report using this data was published, with the prospect that this will be used to monitor changes in risk over time, including the risk profiles of individual firms and the numbers of internal/external SARs made by firms and different sectors. The FCA will be considering whether to extend the types of firms required to provide the financial crime data. See our related blog Financial Crime: Analysis of firms' data – first report.
In addition, the Business Plan confirms that the FCA is contributing to the Suspicious Activity Reports (SARs) Reform Programme and supporting the establishment of a UK bank account register. See our related blog - AML: reforming the suspicious activity reporting regime – have your say.
The ability to use technology to target criminals is also a key priority area with the FCA seeking to use more advanced data analytics and machine learning techniques against money launderers and other financial criminals. The Authority is exploring how it can use technology “to be more intrusive in assessing the effectiveness of firms’ own systems and controls.”
Effective supervision and enforcement
The Business Plan highlights that the FCA’s extensive programme of supervision and enforcement is a key tool in the armoury for tackling money laundering. This was underlined in a recent speech by FCA Director of Enforcement and Market Oversight, Mark Steward when he confirmed that the FCA has a large number of investigations underway, tackling “some very serious issues” which include “suspected financial crime in our markets, suspected false or misleading statements by listed issuers, and suspected significant AML system and control issues under the Money Laundering Regulations”. He referred to the new FCA approach to conducting ‘dual track’ AML investigations, i.e. investigations that might give rise to either criminal or civil proceedings and which brings AML investigations in line with the FCA’s approach to market abuse investigations.
Mark Steward underlined the importance of the FCA giving full effect to the intention of the Money Laundering Regulations 2017 (MLRs), in particular that by criminalising poor AML systems and controls, the MLRs are signalling that, in “egregious circumstances” there will be criminal investigations and prosecutions. Although he anticipated that “criminal prosecutions, as opposed to civil or regulatory action, will be exceptional”, he stated that firms and individuals need to be ready for the increased scrutiny and risk of criminal prosecution in this area and the FCA’s willingness to take action. Where there is a suspicion of serious misconduct there are likely to be interviews of suspects under the criminal caution with a risk of prosecution and conviction for individuals and companies.