1 00118601 Emerging themes 2019 A4 AW v31 combined - Page 31

The National Crime Agency’s use of the Unexplained
Wealth Order regime has also created high profile
headlines exposing lavish spending habits of individuals
whose wealth is unexplained. It is this political focus,
along with the approach of Mark Steward, the FCA’s
Director of Enforcement and Market Oversight, to
encourage the FCA to use all of the criminal powers
which Parliament has prescribed, which has led to the
FCA over the last year opening criminal as well as civil
investigations into banks for suspected breaches of the
Money Laundering Regulations.
Prior to Mark Steward’s leadership, we had seen the
FCA approach enforcement investigations concerning
banks’ compliance with the Money Laundering
Regulations through investigations for suspected
breaches of Principle 3 of the FCA’s Principles for
Businesses. Here the FCA had determined that firms
had failed to take reasonable care to organise and
control their affairs with adequate risk management
systems. Now, however, the FCA is taking a much more
aggressive approach, and for the first time commencing
investigations for suspected criminal breaches of the
Money Laundering Regulations.
The FCA’s approach of bringing criminal investigations
has arisen in part from the extensive work it has been
doing with authorised firms in recent years. This started
with the Systematic Anti-Money Laundering Programme
reviews, where the FCA spent time with 14 major retail
and investment banks operating in the UK, through
which it developed its practical understanding of how
banks were implementing the risk-based approach to
anti-money laundering as set out in the Money
Laundering Regulations. Using its knowledge gained
through this process, the FCA is now conducting a large
number of reviews of smaller banks operating in the UK,
many of which are headquartered overseas.
Through its reviews, the FCA is focusing on whether
firms operating in the UK are meeting the UK standards.
In particular, the FCA is keen to explore whether there
is an understanding of money laundering risk across
the business, from members of the board to junior
members of staff. The FCA is also exploring whether
Money Laundering Reporting Officers (MLROs) are
escalating issues of concern to the boards of their
firms, and accurately recording all of their concerns
in their reports to boards. In probing MLROs, the FCA
is seeking to understand whether MLROs have
considered why the number of suspicious activity
reports filed may have been low, and whether this
might indicate that training is defective, with staff not
understanding how to recognise the risks of money
laundering. In examining the onboarding process, the
FCA is concerned to understand that the processes and
checks set out in a firm’s policies and procedures are in
fact being implemented, whether customer records
contain relevant information and whether enhanced
due diligence is properly being conducted on customers
deemed to pose a higher risk of money laundering. The
FCA is also keen to see that firms are conducting active
ongoing monitoring by checking that account activity is
consistent with the firm’s understanding of the nature of
a client’s business. Following an FCA’s visit, it will normally
send a letter setting out its findings and it is not
uncommon that this letter can set out issues of concern
which were not highlighted by the FCA during its visit.
Through its visits, the FCA has gathered a huge amount
of data regarding firms’ approaches to anti-money
laundering, and also regarding individual customers who
may appear to be involved in money laundering. Where
it considers that firms have failed to comply with its
standards, the FCA has shown that it will take action.
The approach of bringing criminal investigations into
firms where there are concerns that a firm has failed
to comply with the FCA’s expectations around how
firms have implemented the risk-based approach
to anti-money laundering systems has raised some
concerns. In particular, if there are concerns over the
adequacy of a firm’s interpretation of the risk-based
approach, it would seem surprising that an investigation
over the quality of a firm’s systems and controls can
give rise to a criminal investigation, where a firm had
implemented policies and procedures under the Money
Laundering Regulations and where these policies had
been subject to regular audit reviews.
As an alternative to the opening of criminal and civil
investigations, the FCA may require a firm to appoint
a skilled person where it has concerns. Firms should
bear in mind that, should the report of the skilled
person raise compliance issues, an enforcement
investigation may follow, and the FCA frequently quotes
from the findings of skilled persons in their final notices.
As a result, firms should not consider that a skilled
person is solely performing the role of an adviser to
the firm or be lulled into a false sense of security in
their dealings with the skilled person. Care always
needs to be taken in dealing with a skilled person, in
the same way that care would be taken in responding
to questions raised by the FCA itself.
In summary
Whilst the approach the FCA has taken in commencing
hybrid criminal and civil investigations has undoubtedly
raised the profile of the FCA’s work in this area, if there is
a proper basis for these investigations, we are likely to
start to see evidence of this during 2019, either with firms
and members of senior management being charged
with criminal offences, or with further enforcement
Partner, London


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