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#Anti Money Laundering #Financial Crime Prevention

The FCA Anti-money laundering annual report 2015/16: progress – and challenges

International Compliance Association

The UK’s Financial Conduct Authority (FCA) has published a small library of reports this month, including its Anti-money laundering annual report 2015/16, which provides some interesting insights into its work, and some themes emerging from this, over the last year.

Financial crime is a current key priority for the FCA, and will continue to be so in 2016-17, so the report provides a useful indicator of the FCA’s direction of travel around anti money laundering (AML) activity, kicking off with a summary of the way it approaches its supervisory work, including:

  • the Systematic Anti-Money Laundering Programme (SAMLP) for 14 large banks in the UK and their overseas operations
  • regular AML inspections for firms with higher financial crime risks
  • thematic reviews, including a 2014–15 assessment of consumer credit firms,
  • following up information provided by whistle-blowers or law enforcement.

Good intentions

So if that’s the nuts and bolts of how the FCA works, what it has been up to? Well, the major banks recognise that AML needs ‘a strong tone from the top’ – something that the FCA expects to be reinforced by the new Senior Managers and Certification Regime, with its emphasis on individual accountability and greater senior management engagement.

But the FCA notes challenges in transforming these good intentions into a robust AML culture, with significant remediation work necessary at some of the biggest banks. Meanwhile, smaller high-risk firms are turning their size to their advantage and improving more rapidly.

As for outcomes of supervisory and enforcement activities, the highest profile by far – involving the largest fine imposed by the FCA or its predecessor, the Financial Services Authority – was the £72 million penalty for Barclays Bank in November 2015.

Other actions include applying remedial tools and restricting high-risk businesses at 14 firms, until their AML controls have been strengthened; 11 skilled persons’ reports (independent reviews of firms’ financial crime regimes or remediation work); and 15 senior manager attestations that remedial work has been completed. Taken together, the FCA says activities such as these ‘have prompted many firms of all sizes to recognise the importance of effective AML systems and controls’.

Looking to the future

What can we expect to see from the FCA over the coming months and years? Well, the FCA says it is planning to introduce a financial crime data return, covering many of the 15,000 firms whose compliance with the Money Laundering Regulations 2007 it supervises, to help it better identify the firms at highest risk of financial crime. It is also looking to publish aggregate data from the returns, to provide firms with more information on money laundering risks.

Following on from an FCA-commissioned report into de-risking, published in May, the FCA plans to do more work on this issue, with a focus on reducing the ‘damaging effects of de-risking without constraining banks’ commercial freedom.’

The FCA also plans to examine in more detail how new technology could make AML systems and controls cheaper and more efficient and continue its work with the Joint Money Laundering Intelligence Taskforce – which is moving from a pilot to permanent footing – to improve intelligence sharing.

And then there’s the little matter of Europe: the FCA refers to work to transpose the Fourth EU Anti-Money Laundering Directive into UK law…though how much of that will actually make its way onto the UK’s statute books post-Brexit is anybody’s guess.

The view from the IMF

As well as reporting on its own findings, the FCA includes a very brief, two paragraph summary of what the International Monetary Fund (IMF) had to say on anti money laundering and countering the financing of terrorism (CFT), following the IMF’s Financial Sector Assessment Program review of the UK, published in June.

In the full 31-page report, the IMF describes the UK’s AML/CFT supervisory framework for higher risk banks as ‘adequate’ – not exactly a ringing endorsement – while adding that ‘only time will tell if it is so across the entire range of banks since the AML/CFT supervisor strategy has only recently been implemented.’

It also highlights the ‘few instances’ of fines for banks for breaches of AML obligations since 2010 and questions whether the penalties regime introduced in 2010 ‘will be applied in a sufficiently dissuasive manner across the entire range of banks’ – though it does acknowledge the FCA’s view that fines are not the only tool it has to tackle non-compliance.

The IMF’s recommendations for action include examining whether the lowest risk banks are receiving the right level of supervision, to make sure they are assessing and managing risks effectively, and looking at whether more cases should be referred for enforcement.

So the conclusion seems to be that the UK is on the right track in terms of tackling money laundering, but still has work to do – and so, some would say, does its regulator.

 

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