Services regulator increases focus on financial crime

March 26, 2015 by Mark Dunn

On the 24th March 2015, the FCA set out its 2015/2016 business plan. The plan tells us that as well as keeping their seven key longer-term risk areas consistent, the FCA has a new risk focus for this year - examining the systems that businesses have in place to tackle financial crime. The FCA has elevated this due to the increased potential for financial crime to have a negative impact on their objectives (to promote and enhance the integrity of the UK financial system). Examining systems to prevent financial crime has replaced rapid house price growth which has cooled since last year.

"We are working with the Treasury and the industry to emphasise that a risk-based approach means the effective management of risk rather than simply risk avoidance."

The FCA has emphasised a focus on preventing money laundering, bribery and corruption, terrorist financing and sanctions, thereby signalling even greater scrutiny to be put on banks' financial crime prevention controls. In the last two years the FCA has increased the number of firms it regulates from around 26,000 to over 70,000, therefore more firms will be under scrutiny. The regulator has stated:

"We are implementing an enhanced anti-money laundering supervision strategy, which includes continuing our Systematic Anti-Money Laundering Programme to assess AML (including counter terrorist financing and sanctions) and ABC controls at major firms."

Firms that fail to place adequate emphasis on implementing necessary systems and controls are more vulnerable to being used to further financial crime.

According to the new plan, firms that fail to implement necessary systems and controls are more vulnerable to being used to further financial crime. From now onwards they will be expected to have 'effective, proportionate and risk-based' systems and controls in place.

The FCA are also implementing enhanced anti-money laundering supervision strategies to assess AML and ABC controls at major firms, as well as visiting smaller firms who may be at risk of being exposed to financial crime.

What does it mean for firms in the financial services industry?

The FCA engage with the Serious Fraud Office, the National Crime Agency, the City of London Police amongst other enforcement agencies to take action against firms that commit financial crime. The EU will also adopt the Fourth Money Laundering Directive this year, which will help the FCA transpose new regulation into UK law. They estimate the financial penalty rebate in 2015/16 to be £40.3m.

Alongside tougher criminal sanctions targeted at corporate and senior management misconduct, it seems that there will be an increase in criminal prosecutions within the financial services industry. Given the FCA's track record, this could mean more fines for lax controls in management. They will continue to take action against firms that fail to implement the necessary systems and controls to prevent financial crime, but hold senior management to account for failure to prevent it. Firms should act now to analyse any gaps in compliance and take appropriate corrective action.

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