The Financial Conduct Authority has said in its recent annual report for 2017-18 that one of its most important jobs is to fight money laundering in the UK. There are plenty of initiatives afoot.

The fight against financial crime and money laundering is a priority of the FCA’s that goes across all financial sectors. In looking back over the year in terms of major priorities, the report states that “our aim is to make the UK financial markets hostile for criminals. We also want to ensure the UK’s financial system is resilient against their activities and a safer place for customers.”

The report contains a web link to a separate report about the FCA’s anti-money-laundering work for the past year, but the link does not work at the time of writing.
 
Harm to society and the reputation of the UK's financial system

The AML report reminds everybody that money laundering harms society by helping criminals and can affect the reputation of the UK's financial system. The FCA says that “when we design safeguards, we need to ensure they are proportionate, efficient, and minimise any unintended consequences of regulation.”
 
2017-18: an overhaul of the UK’s AML regime

The report draws the reader's attention to some areas in which the UK has taken a 'stronger' approach this year, including:  

• the overhaul of its AML regime by means of the Money Laundering Regulations 2017, which enshrine the EU's Fourth Money Laundering Directive in British law – this including FCA guidelines to do with "politically exposed persons" or PEPs;
• the overarching "supervisor of supervisors" housed in the FCA, otherwise known as the Office for Professional Body Anti-Money Laundering Supervision or OPBAS, which is supposed to give Britain's legal and accounting sectors a consistently high standard of AML supervision;
• attempts to gauge ways in which technology can help firms meet their obligations to detect and prevent money laundering; and
• the financial crime data returns that firms have to send the FCA.

A risk-based approach

The risk-based approach that the Fourth Money Laundering Directive is designed to impose on countries outside the UK that have not be following it for years is, for some reason, a key theme for the FCA. The report says: “We continue to take a risk-based approach to AML supervision. We keep our approach under continuous review to ensure we target our resources most effectively on the firms and sectors that present the highest money laundering risk.”
   
In terms of OPBAS, the report says that the FCA has conducted introductory visits to all the so-called Professional Body Supervisors to assess their approach to supervision, adding that “action will be taken where we find weaknesses”. The FCA goes on: “We will then move to a risk-based approach, focusing our time and resources where there is the most potential for harm."

Proactive firm-specific supervision work

The Anti-Money Laundering report identifies the “Systematic AML Programme (SAMLP)” as a vital tool that the FCA uses to perform “proactive firm-specific supervision work.” This plan of action, which began in 2012, involves the regular and thorough scrutiny - presumably by the FCA - of 14 major retail and investment banks that operate in the UK. It also includes those banks' overseas operations whose business models are more risky than others or are strategically important. The FCA has completed its second round of reviews this year; this has allowed it to see how firms have been changing their financial crime controls and the improvements they have made (if any).
 
The report says that “overall, we found that firms have made significant improvements in their AML controls since our first visits.” The changes they have made to their control structures are recent and “they are well designed.” The FCA adds that “firms are identifying and mitigating risks effectively."
 
The FCA has identified some areas of weakness, notably assessments of the risks that customers pose which do not consider enough factors. The fear here is that this could result in "inadequate risk-based due diligence and monitoring."

On the whole, the FCA thinks that some firms have more work to do to comply with the new Money Laundering Regulations fully. Nevertheless, it may also be the case that firms are concentrating too hard on their AML controls; the report states that the FCA has found weaknesses in their anti-bribery and and anti-corruption efforts, adding helpfully that “we made clear to them that they must ensure they manage and mitigate all their financial crime risks at all times.”

AML enforcement

The FCA says that it is investigating “around 75 firms and individuals for AML issues.” On many of these investigations it is using both its civil and criminal powers that spring from the Financial Services & Markets Act and the Money Laundering Regulations 2017. There has indeed been a recent increase in the number of AML investigations and this "represents a change in our overall approach to opening investigations earlier and more quickly where we suspect serious misconduct."

Close co-operation

At a recent FCA Brexit speech, one of the regulators said that his organisation was still collaborating with law-enforcement agencies, governments and regulators in support of its investigations and to spot risks in relation to money laundering. The report, meanwhile, says that the FCA works closely with "international partners" to “build our knowledge of key money laundering threats and increase our understanding of different national responses.” It does not, however, contain any mention of Brexit.

The year to come

Over the next year, financial crime will remain one of the FCA's main obsessions. It looks at its task in terms of defending the UK against a threat, using such phrases as "the UK’s defences against money launderers." It adds that “from what we see of developments around the world, this will continue to be a complex and difficult task.”

The FCA is also taking account of the findings of the Financial Action Task Force's "mutual evaluation" of the UK. The FATF is the world's chief AML standard setter.

* The City law firm of Kingsley Napley can be reached on +44 (0)20 7814 1200