In the first anti-money laundering annual report published by the FCA on the 1st August 2013, the FCA has concluded that the level of anti-money laundering compliance in financial services firms is a “serious concern”.

The report explains the FCA’s obligations relating to anti-money laundering, its approach to carrying out those obligations and current and emerging trends in relation to those firms which it regulates.  The report focuses on money laundering, financial sanctions breaches and terrorist financing.

The FCA is due to publish a review of anti-money laundering and anti-bribery and corruption controls in asset management firms later this summer.

a summary of the FCA’s key findings are shown below:

Sources of financial crime

The most important financial crime risks come from

(i) money laundering,
(ii) breach of the UK’s and other countries’ financial sanctions,
(iii)  terrorist financing,
(iv)  investment fraud (boiler rooms and similar frauds) and
(v) bribery and corruption.

FCA’s approach to anti-money laundering

(i) The FCA aims to be proactive in solving any problems it finds.

(ii) It concentrates on identifying current and emerging financial crime risks and ensuring firms are aware of their implications and how to mitigate them.

(iii) This means the FCA can ensure firms maintain and enhance their systems and controls against financial crime.

(iv) No different to its general approach, the FCA states its approach is intensive and intrusive with an emphasis on early intervention and credible deterrence where serious risks are identified.

Levels of compliance, current trends and emerging risks

The FCA’s findings based on its thematic review in 2011 include:

1. failing to manage the risk effectively (accepting very high levels of money laundering risk if the immediate reputational and regulatory risks are acceptable);
2. failing to apply meaningful enhanced due diligence measures in higher risk situations and so failing to identify or record adverse information about the customer;
3. failing to put effective measures in place to identify customers as politically exposed persons;
4. failing to establish the legitimacy of the source of wealth and the source of funds to be used in the business relationship;
5. inadequate safeguards to mitigate conflicts of interests;
6. no clear policy or procedures and risk assessment for trade-based money laundering risks; and
7. failing to implement adequate controls to identify potentially suspicious transactions.

The FCA

(i) highlights the root cause of these problems is often a failure in governance of money laundering risk which leads to inadequate anti-money laundering resources and a lack of assurance work across the firm.
(ii) states it is essential that senior management set the right tone from the top otherwise an effective anti-money laundering regime will not be embedded.
(iii) Enforcement team is currently investigating three banks in relation to weaknesses in anti-money laundering controls.

The FCA highlights that emerging risks arising directly in FCA-authorised firms include in relation to:
(i) the e-money sector: and
(ii) (ii) cybercrime.