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FCA Amendments: Guidance on Financial Crime

Financial Crime Systems and Controls

29 April 2015

Financial crime systems and controls

The FCA have now published the revisions to their Firms Guidance on Financial Crime.  In particular the regulator amended Chapter 2 of the Guidance on Financial Crime Systems & Controls on Management Information and Risk Assessments.

Summary of FCA Guidance Amendments:

Financial Crime Management Information:

The FCA’s Financial Crime Guide helps clarify the type of management information that should be collated and provided to a firm’s senior management to ensure that any risks related to financial crime that their firms’ might be exposed to is fully understood.

The FCA advises that Management Information should be provided regularly and ad hoc as risk dictates and will help senior management effectively manage risks and adhere to their firm’s risk appetite.

Financial Crime Management Information Examples:

• An overview of the financial crime risks, including information about any emerging risks that the firm is exposed to, along with any changes to the firm’s risk assessment.
• Regulatory and legal developments and if these have any effect on the firm’s approach
• An overview of the effectiveness of the firm’s financial crime systems and controls
• An overview of gifts, entertainment, hospitality, charitable donations and staff expenses including any rejected claims
• Relevant information about individual business relationships such as:

- The number of transaction monitoring alerts

- Details of any true sanctions hits

- Information about suspicious activity reports considered or submitted, where this is relevant; and

- The number and nature of new business relationships, in particular those that are high risk and the number and nature of business relationships that were terminated due to financial crime concerns.

Management Information may come from more than one source such as a firm’s compliance department, internal audit, customer-facing staff, the MLRO or nominated officer.

Financial Crime Risk Assessments:

The Regulator advises that if a firm is to apply proportionate and effective systems and controls, then having a thorough understanding of the financial crime risks that it is exposed to is vital.

Therefore a firm should identify and assess those risks to which it is exposed to that they can then target their financial crime resources on areas of greatest risk. The firm should identify and assess risks such as:

• The products and services that it offers
• The jurisdictions it operates in
• The types of customer it attracts
• The complexity and volume of transactions
• The distribution channels it uses to service its customers

The regulator informs that business-wide risk assessments should therefore:

• Be proportionate to the nature, scale and complexity of the firm’s activities;
• Draw upon a wide range of relevant information, as invariably it is not sufficient to consider just one source
• Be comprehensive and consider a wide range of factors – again as considering only one factor is invariably insufficient.

Firms, having considered their business-wide risk assessments, should build upon these to determine the level of risk associated with individual relationships. This should:

• Enable them to take a holistic view of the risks associated with the relationship, considering all relevant risk factors; and
• Enable them to apply to apply the appropriate level of due diligence to manage identified risks.

Whilst assessment of the risks associated with individual relationships can inform, they are not a substitute for business-wide risk assessments, as such firms should review both business-wide and individual risk assessments regularly to make sure they remain current and appropriate.

Click here to view a Summary of the FCA’s Amendments to their Financial Crime Guidance - Chapter 3: Money Laundering & Terrorist Financing