This month I have chosen to concentrate on an area which seems to be expanding both in terms of regulatory interest and innovations of the criminal kind – the Financial Conduct Authority Anti-Money Laundering Agenda.
The FCA’s 2014 Anti-Money Laundering (AML) Annual Report was published in May this year and it is an interesting read for consumers as well as students and employees in the financial services industry. It provides a sound overview of both national and overseas trends and developments as well as emphasising the FCA’s role as regulator with regards to AML. Historically the Proceeds of Crime Act 2002 and Money Laundering Regulations are cited by students as the main sources of information in the UK’s AML strategy. However this is not the whole picture today. The latest Money Laundering Regulations came into effect in December 2007 and effectively transpose the European Union’s 3rd Anti-Money Laundering Directive. A 4th Anti-Money Laundering Directive is nearing completion this year.
One of the roles of the FCA is as the ‘competent authority’ which supervises most credit and financial institutions, including their AML processes. To assist in this they issued a Financial Crime Guide in 2013 which details examples of good and bad institutional practice. This has since been updated following a Thematic Review which identified that, whilst banks mostly had effective AML controls, there are still weaknesses. The FCA also works in partnership with the National Crime Agency which is responsible for tackling major organised crime, including money laundering. It also works with the Financial Action Task Force (FATF), recently progressing the 4th EU Anti-Money Laundering Directive. The FATF is an inter-governmental body which makes recommendations internationally to combat money laundering, terrorist financing and related threats to the integrity of the international financial system.
The Annual Report includes the following findings:
(a) inadequate governance and oversight of money laundering risk, especially historically;
(b) inadequate risk assessment processes to identify high risk customers;
(c) poor management of high-risk customers and those who are Politically Exposed Persons (PEPs), particularly in relation to establishing their sources of wealth and of funds;
(d) inadequate due diligence on correspondent banks;
(e) inadequate or poorly calibrated AML/sanctions-related IT systems;
(f) weaknesses in handling of alerts relating to sanctions and/or transaction monitoring;
(g) poor judgements or questionable decisions leading the firm to take on unacceptable money laundering risk.
On a positive note the following finding was also included: ‘many banks, particularly large banks, now recognise AML as an issue requiring senior management attention and a strong tone from the top. Our thematic work on smaller banks has highlighted that private banks and wealth management firms are generally performing better on AML issues than retail and wholesale banks.’ (FCA, 2014)
The types of money laundering are also changing and the following are areas considered to demand further review of AML policies: Mobile banking, virtual currencies and ‘de-risking’ ie exiting from existing business relationships with higher-risk customers.
We have been warned!