As we come to the end of 2021, compliance officers might find themselves dedicating a lot of their time reminding employees to complete their compliance training before the year end and following up with the task of checking whether that training has indeed been carried out. If you find yourself in that position, or are currently at the receiving end of timely reminders to complete your training, this article looks back at some of the key updates from the FCA around financial crime, as well as some of the high-profile enforcement cases of 2021, to serve as a timely reminder of the importance of training.
As of December this year, four of the biggest sanctions from the last 12 months have related to failures in financial crime and AML controls and there are numerous active investigations underway that are likely to result in sanctions of some form. As always, the FCA wants firms to do more to reduce the risks of financial crime and prevent market abuse. Even in these unusual times that we find ourselves living in, the subject remained high in the FCA Business Plan 21/22. Putting the pandemic aside, firms were reminded that this has always been the case, and complacency is not an option.
There have been a number of additional publications from the regulators and other governmental sources that set out the key risks and these are largely aligned with the business plan. What is clear, is that firms need to make sure that they have robust arrangements in place to help them to meet regulatory scrutiny.
Areas of Focus
Market Abuse: The fair and competitive operation of the retail markets relies, to a large degree, on how well the wholesale markets are operating. The FCA is developing more sophisticated tools that help it to monitor the reported transactions in financial instruments more effectively, assess Suspicious Transactions and Order Reports (STORs) and follow up intelligence from whistle-blowers on financial crime or fraud.
It is recognised that different sectors will present different risks and the FCA adapts its approach accordingly. For example, they track the volume and quality of STORs from wholesale firms and venues as an indicator of market quality and potential market abuse. They track the number of supervisory cases involving financial crime and other issues, including information from whistleblowers. They also publish annual data on market cleanliness, which is defined as the proportion of corporate takeover events for which an abnormal movement in share price was observed before the takeover announcement.
Financial Crime Risk Assessments: Although the FCA Business Plan didn’t specifically address a firm’s obligation to periodically assess their financial crime risks, there were references to the Regulators concerns that firms are not effectively managing their systems and controls relating to financial crime. Indeed, there have been a number of publications from the FCA and the Treasury that raise such concerns.
Under Money Laundering Regulations (MLRs), all regulated firms are required to identify and mitigate the risks that their firm will be used by criminals to commit financial crime. In thematic reviews, the FCA have routinely found gaps and weaknesses in arrangements concerning:
- Governance and Oversight
- Risk Assessments
- Due Diligence
- Transaction Monitoring
- Suspicious Activity Reporting
It is a fact of life that all firms will face financial crime risks as part of their day-to-day business and with the FCA developing more sophisticated monitoring techniques to identify when firms fail to manage those risks, firms must ensure that they are confident in the effectiveness of their systems and controls.
Key Enforcement Cases in 2021
Regulators in the UK have established a serious commitment to investigating serious misconduct where this affects the proper functioning of the financial services market. Some recent enforcement cases highlight the risks and negative consequences that can arise from insufficient Anti-Money Laundering (AML) / Counter Terror Funding (CTF) systems and controls and the related enforcement actions that regulated firms expose themselves to:
In January 2021, a money transfer company, MT Global Limited, was handed the largest ever fine (£23.8 million) issued by the HM Revenue and Customs (HMRC) for significant breaches of the MLRs between July 2017 and December 2019 relating to risk assessments and associated record-keeping; policies, controls and procedures; and fundamental customer due diligence measures. Prior to this, the largest AML fine HMRC had issued was in September 2019, of £7.8 million, to Touma Foreign Exchange, another money transfer company, for similar breaches of the Regulations including failure to provide adequate training to staff.
In March 2021, the FCA announced that it would be initiating criminal proceedings against NatWest for failing to monitor suspicious activity from one of its customers, a Bradford jeweller, between 7 November 2013 and 23 June 2016. In the resulting trial, NatWest admitted to three counts of failing to monitor the client’s account and ongoing activity and now faces a fine of up to £340m.
In July 2021, Monzo, a UK authorised bank, released its annual report 2020 / 2021 in which the Bank indicated that “In May 2021, the FCA notified us that it had started an investigation into our compliance with the Money Laundering Regulations 2017, potential breaches of some of the FCA Principles for Businesses and related FCA rules for anti-money laundering and financial crime systems and controls between 1 October 2018 to 30 April 2021,". Monzo has confirmed that it is currently cooperating with the FCA’s investigation which, although at an early stage, is looking into both potential civil and criminal liability.
The Importance of Training
Training is an essential element to ensure employees are aware of their obligations and responsibilities under the MLRs and the defined approach by the firm to comply with the regulatory requirements. The content and effectiveness of such training will be important to the success of the firm’s AML and CTF strategy.
Effectively, AML/CTF training is considered a key control given that employees are, in general, the firm’s best defence against ML and TF. Even the best designed AML/CTF systems and controls can be quickly compromised if the staff implementing and applying them are not adequately trained.
Regulated firms must ensure that compliance with the MLRs is a priority within the business they run. This should involve proactively reviewing and, where necessary, updating their staff training, particularly with respect to conducting due diligence and ongoing monitoring of customers and transactions.
How Compliancy Services Can Help
To ensure that your management and staff receive appropriate compliance training, as required in the legislation, Compliancy Services offers two options, a market-leading e-learning platform on out homegrown software Portall and bespoke classroom training and workshops.
If you are interested in finding out more about our training options and how we could deliver these to your staff, contact us to arrange a call with one of our consultants, we would be happy to assist you.
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