Last week, the Financial Conduct Authority (FCA) issued a letter addressed to CEOs of Annex 1 businesses, which include lenders, safe custody providers, money brokers, and financial leasing companies. This communication underscores the necessity for these firms to uphold stringent compliance with the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017 (MLRs).
Identifying Common Control Failings
The FCA's letter highlights several common weaknesses observed during assessments of Annex 1 firms' financial crime policies, controls, and procedures. These critical areas encompass business model discrepancies, risk assessment deficiencies, lapses in due diligence and ongoing monitoring, and inadequacies in governance, management information, and training.
Taking Action
Annex 1 firms are urged to take proactive measures to address these identified weaknesses promptly. The FCA expects CEOs and senior management to carefully assess the contents of the letter and ensure that their firm's financial crime frameworks align with regulatory requirements.
Specifically, Annex 1 firms are required to conduct a comprehensive gap analysis within six months and take necessary steps to rectify any deficiencies uncovered.
Enhancing Financial Crime Controls
To fortify financial crime controls, Annex 1 firms must focus on several key areas outlined in the FCA's letter. These include:
- Business Model: Annex 1 firms must ensure alignment between registered activities and actual operations, alongside maintaining adequate financial crime controls amid business growth.
- Risk Assessment: Thorough Business Wide Risk Assessments (BWRA) and Customer Risk Assessments (CRA) are imperative for identifying and mitigating money laundering, terrorist financing, and proliferation financing risks.
- Due Diligence and Ongoing Monitoring: Firms must establish clear policies and procedures for customer due diligence, ongoing monitoring, and suspicious activity reporting, ensuring compliance with MLRs.
- Governance, Management Information, and Training: Adequate resources, effective training programs, and robust governance structures are essential for managing financial crime risks and maintaining regulatory compliance.
Conclusion
The FCA's letter serves as a clarion call for Annex 1 firms to bolster their financial crime controls in alignment with MLRs. By addressing the identified weaknesses and implementing robust frameworks, these entities can contribute to the integrity of the UK financial market while mitigating the risk of illicit activities. Compliance with regulatory standards not only safeguards against financial crime but also fosters trust and confidence in the financial sector.
How FourthLine can help
FourthLine is a non-financial risk and resilience consulting & advisory firm working with financial sector clients to enhance their approach to operational risk management. Schedule a meeting to discuss your firm's Financial Crime Risk Management requirements.
