On 12 July 2016, the Financial Conduct Authority (FCA) published its annual anti-money laundering (AML) report for 2015/16 (the Report). The FCA explained its key role in ensuring that firms have measures in place to prevent financial crime. The Report provided the FCA with an opportunity to report on its AML work from the last year. Importantly, in the Report the FCA reiterated that addressing financial crime and AML will remain one of its seven priorities, as stated in its business plan for 2016/17.
In the Report, the FCA addressed the developments in its AML supervision strategy, and also outlined the findings and outcomes of its recent supervision work. The FCA also discussed policy developments, the independent assessment of its AML supervision and how it cooperates with other supervisors both inside and outside of the UK. The Report has a separate section titled `Looking ahead' in which the FCA outlines key aspects of the AML work it intends to carry out over the coming year.
The FCA clarified that AML systems and controls remain high on its agenda and explained that its approach to AML supervision is risk-based. The FCA also explained that it aims to ensure effective and proportionate AML standards in regulated firms. Accordingly, the FCA said that it allocates its resources on a risk-based model by focusing resources on those firms and activities that present the highest risk of money laundering.
The FCA stated that it has continued to implement its AML supervisory strategies which includes two programmes. One of the programmes is called the Systematic Anti-Money Laundering Programme. This programme focuses on major retail and investment firms operating in the UK. The FCA stated that it also focuses on overseas operations which may be deemed high risk or of strategic importance. The other programme focuses on carrying out regular AML inspections of a group of other firms which pose a high financial crime risk. The FCA explained that it also utilises thematic reviews, outreach programmes, intelligence received about financial crime risks and events from whistleblowers, law enforcement agencies and other regulators, as components of its approach to AML supervision. It explained that it is planning on enhancing its supervision strategy by increasing the breadth of the population of firms regulated by the FCA. The FCA also proposed the introduction of a financial crime data return so that firms posing a high risk of financial crime can be identified via increased transparency and so that this data can be aggregated and published.
The FCA indicated that it is pleased with the outcomes of the above programmes so far. Another positive point identified by the FCA was that major banks have started to recognise that AML is an issue that requires the attention of senior management. However, the FCA did indicate that weaknesses have been found in the AML controls of major banks. It indicated that some banks were devoting insufficient resources to AML systems and controls, which resulted in staff often lacking the relevant knowledge of AML processes. The FCA indicated that it might refuse an application for a Variation of Permission if inspections found that there were major AML weaknesses within the applicant firm. The FCA said that it needed to intervene in the AML procedures of 12 firms between 2012-2014 due to their weaknesses, and indicated that it has intervened on two further occasions during 2015-16. The FCA stated that it has the ability to commission reports under section 166 of the Financial Services and Markets Act 2000 (FSMA) (skilled persons reports) in order to obtain an independent view of the systems and controls implemented by firms to combat finance crime.
The FCA also described the policy developments of the previous year; focusing, in particular, on de-risking. Referring to a report it produced in July 2015,
it identified that, in many cases, banks were carrying out a cost-benefit analysis with regard to whether to maintain certain client accounts that were not always related to financial crime risks. The FCA also outlined that it wants to foster innovation and reduce the cost of AML compliance by ensuring that the Fourth EU AML Directive is implemented so as to allow the use of digital identification. It also explained that it is working with the Financial Action Task Force (FATF) and the Financial Stability Board to ensure that AML standards are consistent on a global scale. The FCA highlighted that part of its role is to protect the integrity of the financial services sector and, accordingly, it indicated that it intends to encourage banks to communicate better with clients.
The FCA stated that the IMF has recently reviewed its AML supervision of higher risk banks and concluded that it is adequate. However, the FCA stated that it has some concern about the supervision of other banks.
The FCA explained in the Report that it has been involved with other EU banking supervisors through the AML Committee of the joint European Supervisory Authorities (ESA). It explained that its contribution included drafting guidelines on enhanced customer due diligence, and on factors that financial and credit institutions should consider when assessing money laundering and terrorist financing risk. Following the release of the ESA's draft guidelines in October 2015 on risk factors and risk-based approach to supervision, the FCA expects that the final guidelines will be published later in 2016. Furthermore, the FCA also explained that it had established a mechanism for improved informationsharing between financial institutions and law enforcement organisations as members of the Joint Money Laundering Intelligence Taskforce.
Looking ahead to the coming year, the FCA said that it will continue with its current supervision strategy and begin to utilise the data from the new data return. It also indicated that it will continue to work with the Treasury to implement the Fourth EU Anti-Money Laundering Directive and introduce its new de-risking programme. The FCA indicated that another evaluation of AML supervision is due to take place in late 2017 and early 2018 by FATF.