Recent Communications from the FCA Underscore Its Strategy for AML Enforcement

Financial services firms looking to reduce their financial crime exposure and enforcement risk should take note of recent messaging from the Financial Conduct Authority (FCA). Culture, governance, and financial crime management remain important priorities. In addition, the expansion of dual-track investigations — i.e., investigations that may result in civil and/or criminal penalties — into financial crime enforcement evidences the FCA’s ongoing commitment to investigating, penalizing, and prosecuting money laundering and other financial crime.

The FCA recently provided several noteworthy updates on its financial crime priorities for 2019 and beyond in the form of its Business Plan 2019/20  and remarks from Mark Steward, the FCA’s Director of Enforcement and Market Oversight. The Business Plan 2019/20 indicates a continued prioritization of firms’ governance and culture and cross-agency and multinational cooperation to combat money laundering and financial crime as well as strategic challenges related to cryptoassets and the development of financial crime compliance RegTech. In addition, Steward’s remarks emphasized the FCA’s intended use of dual track investigations to expand enforcement of money laundering offenses.

Although the FCA explicitly notes that the two primary anti-money laundering (AML) priorities outlined in the Business Plan – i.e., firms’ governance and culture, and financial crime and AML – are continuing priorities and do not represent any new focus from the regulator, financial services firms can gain insight from the FCA’s commentary.

For instance, the FCA notes that it will host events and publish literature exploring cultural themes related to purpose, leadership, and management capabilities; remuneration and incentives; and firms’ assessment of culture to help define healthy corporate cultures and identify existing cultural shortcomings. The FCA expects firms to demonstrate awareness of its views on culture, reflect their awareness in practice and make specific improvements where the FCA identifies cultural shortcomings or issues.

The FCA also explains that it will utilize new approaches to combat money laundering, bribery, and corruption and other financial crimes. One of the prioritized approaches is to implement and utilize advanced analytics and machine learning technologies to improve the FCA’s ability to monitor, detect, and deter financial crimes and also to review and assess the effectiveness of firms’ controls.  The FCA maintained that its coordinated efforts to enhance intelligence sharing with the government and between its agencies will remain a top priority. To that end, the FCA will prioritize continued coordination of multi-agency and multinational strategies to target financial criminals and combat money laundering activity. Accordingly, financial services firms need to ensure that their policies and procedures are kept up to date, risk assessments are ongoing and comprehensive, and that controls and governance are robust.

Regarding its strategic challenges, the Business Plan mentions difficulties relating to the regulation of cryptoassets and use of RegTech applications. Indeed, the FCA reaffirmed its position that strong action should be taken to regulate cryptoassets; however, more industry consultation is necessary before issuance of formal guidance. The FCA also described its intention to continue its work exploring RegTech applications that present cost-efficient and effective AML solutions.

In addition to the priorities laid forth in the FCA’s Business Plan, Steward recently delivered remarks at the Global Investigations Review Live event in London. During his remarks, he provided some additional detail into the FCA’s institution of dual-track investigations for suspected money laundering offenses. In short, dual-track refers to investigations into suspected breaches of the Money-Laundering Regulations that could give rise to either civil proceedings, criminal prosecutions, or both. Steward explained that limiting an investigation to a single track, “would be inconsistent with the investigative mindset,” and could functionally narrow the scope of potential outcomes before the FCA gathered all relevant information and evidence. Nonetheless, Steward noted that criminal prosecutions, “will still be exceptional,” but can be expected where the FCA finds, “strong evidence of egregiously poor systems and controls,” and the existence of, “what looks like actual money laundering.”

Given these communications from the FCA, financial services firms will need to assess firm culture and monitor the FCA’s guidance in this area to ensure compliance. Firms should also utilize data analytics and machine learning, where appropriate, to monitor transactional activity and generate metrics for management review and assessment. Moreover, a robust risk assessment is necessary to detect and mitigate global money laundering risks that could lead to multinational investigations. The implementation of RegTech solutions should be thoroughly vetted to ensure that cost savings do not compromise control effectiveness, and entry into crypto asset markets should be made with appropriate caution. By incorporating these approaches, a financial institution can reduce its financial crimes exposure, including the risk of being investigated by the FCA and the risk of criminal and civil enforcement.

Special thanks to Galajo Bah and Benjamin Donat who contributed to this article.

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