ICT Views

“We believe prevention is better than cure”

by: (Course Director (AML)) on

The quote from Martin Wheatley, Chief Executive of the UK FCA on the guidance just published on the FCA’s approach to advancing their objectives. He goes on to say that this includes seeking out the root causes of problems and dealing with them at an early stage.

In terms of financial crime this new report focuses (page 33) on “keeping the criminals and dishonest individuals out of the industry”.

We have also seen the FCA’s first AML Annual Report with a good focus on the challenges particularly around money laundering (ML), sanctions and terrorist financing (TF).

The FCA report that they are dealing with around 100 cases a year of firms with weak AML controls. FCA’s Enforcement department is currently investigating three further cases of weak controls and have intervened in a further four cases.

“Our approach is intensive and intrusive, with an emphasis on early intervention and credible deterrence where serious risks are identified”

On top of all current risks

lockCurrent emerging risks identified by the report, and let’s just remember these are on top of those existing risks that we are already dealing with, are highlighted as:

  • E money
    − New entrants to the market not being accustomed to AML regulatory and legal framework. Interesting comment given enforcements in place as mentioned above!
    − Outsourcing gives particular ML vulnerabilities given the lack of oversight of the end-to-end process but the responsibility for AML controls
    − Lack of Suspicious Activity Reports from the industry resulting in lack of evidence to assess the criminal trends.
  • Cybercrime
    − Lack of adequate controls and processes substantially heighten the vulnerability to ML and TF attack and the FCA are consulting with the Bank of England, the PRA and Government bodies on cyber resilience.
  • Money Service Businesses
    − We have seen the issues of one major bank in the UK closing relationships with MSBs. The FCA’s concern is that this simply displaces the risk to organisations working outside the ‘regulated sector’. Is it just a case of suitable controls and processes being put in place? (At the FCA’s conference it was quoted that the number of MSBs will mean more than a 100% increase in the number of firms they regulate when they take over MSB supervision from the OFT in April next year).
  • Digital currencies
    − Highlighted in the recent case of Costa Rica-based Liberty Reserve, a currency-transfer and payment-processing company that allowed customers to move money anonymously from one account to another via the internet with almost no questions asked US prosecutors believe that this is the biggest international money laundering prosecution in history – a $US6 billion.
  • Alternative banking platforms
    − Functionality sits outside the standard (regulated) payment platforms and pose a significant threat given they mainly operate from jurisdiction with poor AML oversight.

So what does this mean for the industry?

The message from both reports is that the international reputation of the UK financial markets, coupled with the current economic climate and the developments in technology may well be leading to firms in the UK taking higher risks in potentially handling criminal assets or proceeds of corruption.

How can you help?

1. Feedback – the FCA are seeking comments on their approach to advancing their objectives. Why not contribute?

Particularly on Cybercrime, the FCA is seeking information from firms on when and how they come under attack.

Comments on the report are required by 27 September 2013 following which final guidance will come in early 2014. Guidance on how to contribute is included with the report.

2. Attend appropriate conferences, meetings, seminars, training courses to continue sharing experiences, good practices and procedures.

3. Take personal responsibility for improving your own firms contribution to their ML and TF efforts so that we do make it that hostile environment for the criminals

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