Getting Back to Basics on Financial Crime

On 14 November, 2014, the FCA issued proposals for increased guidance on the subject of financial crime. This will take the form of additional examples of good practice to be added to “Financial crime: a guide for firms” (the FC Guide). The guidance consultation document can be found here.

This makes for very interesting reading. It has come about mainly because the FCA carried out two themed reviews recently. One was a review of anti-money laundering and sanctions controls in small banks; the other was a review of anti-bribery and corruption (ABC) controls in small commercial insurance brokers.

Both reviews revealed weaknesses in controls, and as a result, the FCA has felt the need to make its guidance on financial crime controls clearer.

But don’t stop reading if you don’t work for a small bank or a small commercial insurance broker. These examples of good practice are to be taken into consideration by all firms. The FCA said so.

No rocket science here

The most startling thing I discovered when reading this guidance was that there was nothing in here that hadn’t been stated before; either in the Money Laundering Regulations or in the Joint Money Laundering Steering Group (JMLSG) Guidance Notes. In other words, the suggested guidance and examples of good practice don’t extend beyond what would be considered to be a prudent set of controls that any Money Laundering Reporting Officer would expect to see implemented in their firm. None of this is rocket science – and I was expecting to see some rocket science.

This is concerning. It means that the FCA is still seeing many examples where firms are failing to meet their fundamental obligations regarding the prevention of financial crime.

And even if these examples were restricted to only two industry sectors, this will undoubtedly lead the FCA to consider whether there are widespread weaknesses in other sectors. The focus on anti-financial crime controls has no doubt intensified now.

The “science” bit?

As the consultation is only 16 pages long and can be read quite quickly, I would recommend that everyone read this for themselves. But I’ve picked out some of the highlights to look out for:

  • Greater clarification on the management information that firms should gather to help monitor their financial crime risks
  • A clearer statement on the form that firm risk assessments should take
  • Expansion on the section on enhanced due diligence (EDD), with examples of how EDD could be carried out
  • Expansions of the description of source of funds and source of wealth
  • The introduction of two new chapters to Part 2 of the FC Guide.  The first covers the controls recommended for small banks and includes risk assessments, EDD, governance structures and culture

    The second covers the bribery and corruption risk in commercial brokers, with recommendations on the fundamentals such as governance, risk assessments, transaction monitoring etc.

Like I said – no rocket science here!

What are firms to do?

For firms that operate in one of the two sectors covered in the themed review, the answer is clear – look at your systems and controls and conduct a thorough gap analysis. And where you discover shortfalls, put measures in place to address them as soon as you can. An increased risk of fines and enforcement action for weaknesses in controls is a natural follow-on from thematic review findings.

And for those firms not operating in these sectors? They should probably do the same. Because all firms are subject to the provisions of the FC Guide, this is a good opportunity to critically review these controls and see if there are any areas where improvements need to be made.

And these include checking whether training arrangements are fit for purpose.

Training barely gets a mention in this guidance consultation. It’s restricted to two suggestions by the FCA for commercial brokers. One is to create a one page “Aide Memoire” for staff listing the key points about anti-financial crime and the whistleblowing process. The second is to appoint a compliance expert within each business area to provide ABC advice to staff.

But that doesn’t mean training should be ignored.

If fundamental weaknesses in controls have been identified in certain sectors, it begs the question; “Have the people responsible for implementing these controls really been given enough knowledge and information to understand the importance of having effective controls in place?” If not, then there could be a training issue that needs addressing.

As it stands, training in the area of anti-money laundering and anti-terrorist financing is a regulatory requirement, set out in both the FCA handbook and the JMLSG Guidance. So most, if not all firms should have at least something in place.

But you only get out of your training what you put in – so are the arrangements you have at the moment capable of responding to regulatory expectations?

If not, then help is at hand.

Peoples’ training needs will differ according to their role. Some will just need a generic e-learning package. Others will need specific technical training. There will also be those with supervisory responsibilities, who will need technical understanding to carry out their roles. And then you have the specialists and the subject matter experts. Their training needs might be a little more intense; and that’s where seminars, courses and even professional qualifications need to be considered.

All of these training options are available, thanks to a growing number of training providers, professional bodies and trade associations. The subject of financial crime is well catered for.

So, when the FCA fires a warning shot like this, firms need to be able to respond quickly.

In the area of training, you can now do so, starting here.


Martyn Oughton    

By Martyn Oughton a Professional Member of the International Compliance Association (ICA).  Martyn now writes a regular blog for Industry Events Online focusing on the importance of training in all aspects of compliance. Read Martyn's other publications at Martyn's Writers' Residence website.

To keep up to speed with new events and blog posts sign up to the Industry Events Online weekly newsletter.