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New FCA regulation focuses on foreign banks operating in the UK

September 08th, 2015 - Posted by Annabella Cyril in Anti-Bribery And Corruption, Anti-Money Laundering

The Financial Conduct Authority (FCA) published updated regulations governing the accountability of Money Laundering Reporting Officers (MLROs) earlier this year. While much of the attention of the new regime focused on the effect on UK banks, a substantial portion of the changes will have a significant impact upon foreign financial institutions operating in Britain.

New regulation for management of banks
A new Senior Managers Regime governing the behaviour of the highest-level employees, a Certification Regime aimed at employees who may cause "significant harm" and the extension of personal regulatory duties to all employees performing non-administrative roles will have the greatest impact on banks.

For banks from countries outside the European Economic Area (EEA) operating in the UK, the other significant regime changes include:

  • At least one individual who performs activities akin to a CEO in relation to the branch must be pre-approved as a Head of Overseas Branch. The individual or individuals performing this role must be given the highest degree of decision-making authority within the branch over activities that are subject to British regulations.
  • Individuals based in other UK group entities with direct management and decision-making responsibility over the foreign bank's branch must be pre-approved as Group Entity Senior Manager as well as Head of Overseas Branch.
  • If there are individuals performing senior management functions in the UK including chief finance officers or heads of risk or internal audit functions, these people will have to get regulatory approval.

A further tightening of AML regulation
In addition to the above, further rules include:

  • Linking the certification of foreign banks operating within the UK to rules on remuneration of staff who perform activities which could expose a bank to significant risk.
  • Extending the FCA's certification regime to consistently identify individuals engaged in wholesale activities that could expose banks or their customers to significant risk.
  • Rules on conduct will be extended to individuals within foreign banks performing the roles of senior managers or those responsible for FCA certification.
  • Extending the rules on conduct to any employee who falls within the senior manager or certification definitions who do not work within the financial services parts of the business. This change mirrors those already made to rules governing UK banks.

Achieving compliance in the UK
These new regulations are clearly complex and bring in a new raft of due diligence and compliance responsibilities for foreign banks operating in the UK or those planning to do so. Putting in place a robust set of compliance procedures paying particular attention to these changes will help banks avoid falling foul of FCA regulations.

Overseas banks that wish to trade successfully in the UK will need to deploy a number of policies and procedures including (but not limited to): regular risk assessments to assess the likelihood of regulation violations; a clear corporate compliance policy that is communicated regularly to all staff; the appointment of a dedicated compliance officer; regular training in compliance for all staff and a consistent due diligence template for vetting third parties.

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