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Barclays record FCA fine highlights need for third party due-diligence

December 10th, 2015 - Posted by Doireann Clabby in Anti-Bribery And Corruption

The recent news of Barclays £72 million fine for failing to conduct the appropriate checks on Politically Exposed Persons (PEPs) is a blunt reminder that organisations must make sure due diligence processes are followed by all employees. FCA fines of this nature could well be the first of many. As we noted in our blog – Services regulator increases focus on financial crime – earlier in March, '… 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).'

The FCA has signaled 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 and more firms will come under scrutiny.

How can regulated organisations ensure they don't fall foul of the FCA?

Firms that fail to place adequate emphasis on implementing necessary systems and controls are more vulnerable to the risk of fines. Organisations must meet certain day-to-day responsibilities, especially if they are subject to Money Laundering Regulations. These responsibilities include carrying out 'customer due diligence' to check that customers are who they say they are.

Performing sanction, PEP and watchlist verification

Keeping up with the pace of change around the world isn't easy. In order to mitigate compliance risks, you need to stay up to date with what's happening across scattered information sources including:

  • U.N. Security Council Sanctions Committees
  • The European Union's Common Foreign and Security Policy (CFSP)
  • The U.K. HM Treasury
  • Politically Exposed Persons (PEPs)

Organisations face increased pressure to comply with myriad regulatory requirements. Managing compliance internally is challenging enough, but how do you meet the demands of global compliance when it comes to engaging with third parties? Tracking this much data manually is time-consuming—and you risk missing important information. Without a doubt, technology has made it easier than ever to conduct business globally. But it's not enough just to have a process – it is important to make sure adequate internal controls and monitoring systems are also in place to prevent and report any suspicious activity.

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. With the Fourth Money Laundering Directive now in effect, conducting PEP checks has been extended to include not just international but also domestic PEPs.

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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ps 3 ways you can apply this information right now to…

  1. To protect your business and reputation you need to understand your customers and your third parties.Lexis Diligence brings together all the intelligence you need in one place to conduct consistent due diligence and comply with anti-money laundering and anti-bribery regulatory requirements.
  2. Keep up to speed on developing news and expert opinion with our regular posts on Anti-Bribery & Corruption and Anti Money Laundering.
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