The Financial Conduct Authority has published its annual anti-money laundering report for 2017/2018. What are the likely implications for future enforcement?
In a busy year for anti-money laundering (AML) policy and legislative developments, the Financial Conduct Authority has published its annual anti-money laundering report for the year ended 31 March 2018.
The year's biggest development was the introduction of new money laundering regulations on 26 June 2017 to implement the EU's fourth money laundering directive. This necessitated changes to FCA guidance and the introduction of new guidance on the treatment of politically exposed persons. The FCA reports that some firms have more work to do to comply fully with the changes in the regulations and that the FCA expect firms to assess the impact on their business of any regulatory or legal changes and implement the necessary changes in a reasonable timeframe.
When the last significant change to money laundering legislation was introduced in 2007 we saw the FSA (as then was) take enforcement action against those firms that were too slow in implementing changes and we anticipate that there will be a similar push now.
The FCA continues to report on poor AML controls in smaller overseas banks and in June this year we saw the FCA fine one such bank, Canara Bank, for significant AML failings. With the FCA currently investigating around 75 firm and individuals for AML issues we expect further significant outcomes. As the FCA first intimated in its business plan last year, the approach of the FCA to investigating AML failures is increasingly to look for appropriate cases where they can use criminal prosecution powers under the money laundering regulations. The current approach to FCA investigations is to commence a twin-track criminal/regulatory investigation with a view to deciding on sanction later.
Of particular concern to the FCA is that whilst some firms which had been re-visited had improved their AML controls, others had made little or no progress and in some cases the position worse. Four such firms have been referred to enforcement and skilled persons appointed in seven. Whilst not stated by the FCA, it is likely that members of the boards of such firms are also under investigation.
Another significant change in the FCA's approach to AML supervision is to broaden the scope of firms that the FCA inspects. Whilst previously the FCA focussed on those firms which it viewed as presenting the highest risk (typically large or international banks) now the FCA net is cast wider. The FCA is committed to visiting or reviewing 100 firms from sectors which the FCA considers present lower inherent money laundering risk. This however has not given rise to significant enforcement work, with the FCA reporting that only one formal referral has occurred. The FCA states that this work supports the FCA's assessment that most financial crime risk lies within firms subject to its other proactive programmes.
Interestingly, the FCA reports that it has found weaknesses in firms' anti-bribery and corruption controls, perhaps because firms have largely focussed on AML. In the past the FCA has taken enforcement action against firms with poor anti-bribery controls, particularly insurers, and the expectation is that this will continue. There is an obvious overlap with the jurisdiction of the SFO to prosecute firms for failure to have adequate procedures in place to prevent bribery. However, the SFO can only take action where there has been an actual incident of bribery. There is no similar restriction on the FCA.
The FCA reports that it has been conducting thematic reviews of financial crime risks in the e-Money sector and investment management industry. Thematic reviews frequently given rise to enforcement action against some firms in such reviews and it remains to be seen whether the FCA will make referrals on the back of these reviews.
Another significant development was the creation of the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) which sits within the FCA. The Body does not directly supervise businesses, but rather oversees the AML supervisory work undertaken by legal and accountancy supervisors such as the Law Society and the various Chartered Institutes for accountants. The aim is to ensure robust and consistently high standards of AML supervision. The FCA reports that it has started a round of visits to all professional body supervisors to assess their approach to supervision and will take action where it finds weaknesses. This will inevitably increase the pressure to bring enforcement action against lawyers and accountants.
The FCA confirms that AML and financial crime continues to be a key priority. With the Financial Action Task Force (FATF) due to publish its mutual evaluation report on the UK towards the end of 2018 we will then have a better view of how the rest of the world sees us. It's a fair prediction that the FATF evaluation is unlikely to lead to a diminution in enforcement activity.