The Financial Conduct Authority (FCA) have published a thematic review on ‘Understanding the Money Laundering Risks in the Capital Markets’ this month. It found that generally firms were “at the early stages of their thinking” on the matter and yet it is key to “protecting and enhancing the integrity of the UK financial system”.
Here we summarise the key areas that need attention and show how contractors can hold the answer to addressing them.
Areas for consideration
Carry out effective customer risk assessment and customer due diligence (CDD) ensuring it is kept up to date.
Employ enhanced due diligence (EDD) for high-risk customers e.g High Net Worth Individuals (HNWIs).
Implement effective surveillance systems for transactions.
Ensure rationale for taking the route of simplified due diligence (SDD) is documented.
Ensure accurate transaction reporting.
Complete a comprehensive review of opportunities to money launder. The FCA found that the primary risk is the customer and that it exists across various asset classes and scenarios.
Grow the synergy of focus on money-laundering as well as market abuse. Market abuse could be indicative of money-laundering.
Provide clarity on meeting obligations to submit Suspicious Activity Reports (SARs) and Suspicious Transaction and Order Reports (STORs).
Define accountability of money-laundering risk (ensuring more first line ownership).
Review platforms and how they can be enhanced to provide defence against risk.
Ensure comprehensive and tailored training is in place (completing online modules isn’t enough).
Identify and manage drivers of firms’ behaviour and suggest any necessary changes.
The typologies and red flag indicators in the FCAs Thematic Review (TR19/4) can help give more detail on the risk assessments, transaction monitoring and training that can be put in place.
Relevant regulation expertise required
2.10 of the Recognised Investment Exchanges handbook.
Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017.
FCA Financial Crime Guide.
Joint Money Laundering Steering Group.
FATF’s risk-based guidance for the securities sector.
Part 7 of the Proceeds of Crime Act 2002.
Terrorism Act 2000.
Market Abuse Regulation.
NCA – Submitting a Suspicious Activity Report within the Regulated Sector. NCA – Guidance on submitting better-quality Suspicious Activity Reports. Proceeds of Crime Act.
Senior Managers and Certification Regime (SMCR)
What Consultants bring to the table
Consultants move from company to company and this will give them more exposure to examples of how money laundering can occur and allow for more informed transaction monitoring recommendations and training. The FCA actively encourages the industry to work together and share information wherever possible.
Many of the areas require specialist expertise and experience that the team might not already have.
Some of the issues here lend themselves more to a project as opposed to an ongoing specialist level requirement.
Consultants can be brought in within 48 hours to start working on this as quickly as possible, showing the regulators that you are diligent and responsive.
We have a bench of over 600 talented consultants with the specialist skills and experience to protect your company from Anti-Money Laundering. Please get in touch if you would like to discuss bringing this expertise into your team.