On 5 July 2017, the FCA published its anti-money laundering (AML) annual report for 2016/17.

In the FCA’s fourth AML annual report it explains how it has sought to achieve its AML objectives over the last year. Points of interest in the report include the following:

• Developments in AML supervision strategy. The FCA continues to implement and develop its AML supervision strategy. This includes its existing proactive AML supervisory programmes. The FCA has recently introduced a programme of sample checking across all firms covered by the Money Laundering Regulations 2007 (SI 2017/2157) (2007 MLRs).

The quality of firms’ AML systems and controls remains high on the FCA’s agenda. Its financial crime specialists continue to carry out extensive work on both AML and anti-bribery and corruption (ABC), as these are the aspects of crime where the market incentives for firms are weakest. In some firms, the FCA found serious deficiencies in key areas of the systems and controls. In others, the picture was more positive. In the firms with serious deficiencies, the FCA has taken steps to mitigate the risk, including early intervention through restrictions on the firm’s business while improvements are made. It has also required substantial changes to be made to ensure firms are meeting the requirements and, in certain cases, has required the appointment of skilled persons to ensure that this is done. In 2016/17, the FCA commissioned five skilled persons reports.

• Findings and outcomes from recent specialist supervision work. Generally, the FCA has found that much of the day-to-day work designed to tackle money laundering works reasonably well, and the steps the industry is taking to manage the risks presented by most of the standard-risk customers are broadly adequate. Any necessary follow-up work in the areas the FCA identified through its supervisory assessments are usually undertaking by the firm itself as part of the normal supervisory relationship. Common issues have resulted from weaknesses in governance and longstanding and significant under-investment in resourcing. Managing complex legacy systems remains a challenge for a number of firms, but the FCA is seeing continuing improvements. With smaller firms, the challenges often relate to ensuring that they understand their obligations and that their response is proportionate to their business model and how they operate.

The FCA also receives intelligence and information about financial crime risks from a variety of sources, including whistleblowers, law enforcement agencies and other regulators. In 2016/17, it considered over 150 referrals of this sort and took action in nearly 90 cases. In most of these cases, the FCA used close ongoing supervision to mitigate and monitor the risks. In six cases the FCA took more formal action, for example, restricting the firm’s business. The number of enforcement cases for AML has increased in 2016/17. The FCA has a number of formal investigations underway, with several others being considered for referral.

• New technology and effectiveness. The FCA is keen to encourage the industry to take steps to lessen compliance burdens. Firms and technology providers are exploring many innovative methods of streamlining AML activity in the sector. The FCA is keen to stay abreast of developments in this area, so has commissioned a consulting firm to carry out a survey. In addition, many applications to the FCA’s regulatory sandbox initiative have been from businesses with new ideas about customer due diligence (CDD) or transaction monitoring.
• Looking ahead. The FCA will continue to review its supervision strategy, using the information from the new financial crime data return to target its work on the highest-risk firms and sectors. It also aims to have the Office for Professional Body AML Supervision (OPBAS) (under which it will be the supervisor of professional body AML supervisors), operating on an initial basis by the end of 2017. It is currently working closely with HM Treasury and other partners to prepare for the Financial Action Task Force’s (FATF) forthcoming UK evaluation, which will take place in late 2017 and early 2018. As the biggest AML supervisor in the UK, the FCA will play a major part in the evaluation.

Financial crime and AML continue to be key priorities for the FCA