FCA consults on updates to the Financial Crime Guide

On 25 April 2024, the Financial Conduct Authority (the FCA) issued its Financial Crime Guide Updates Consultation Paper (CP24/9) (the Consultation). In the Consultation, the FCA recognises the “enormous damage” caused by financial crime and says it is committed to making sure that firms and markets are not used as conduits for financial crime.

As part of the Consultation, the FCA is proposing updates to the Financial Crime Guide (the FC Guide) (that forms part of the FCA Handbook) in relation to:

(1) Sanctions

Following Russia’s invasion of Ukraine in 2022, the FCA has been conducting an assessment of firms’ sanctions systems and controls relating to sanctions compliance.
The FCA propose to make extensive updates to Chapter 7 covering Financial Sanctions to reflect learnings from the FCA’s assessments.
The proposals include, additional reporting requirements, governance arrangements including senior management accountability, the importance of management information, details on how firms consider their exposure to potential sanctions regimes, example expectations of good and poor practice, guidance on CDD/KYC and new guidance on how firms identify, assess and report potential sanctions breaches.

(2) Proliferation Financing (PF)

The FC Guide will be updated to make explicit reference to PF throughout and highlight the updates made to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) in 2022 that requires firms to carry out PF risk assessments.

(3) Transaction monitoring

Recognising that transaction monitoring is a key control for firms, guidance will be provided for firms on how they can implement and monitor transaction monitoring systems and support responsible innovation and new approaches.
The specific guidance will include – new self-assessment questions and examples of good and poor practice on the expectations for firms to ensure that triggers in automated systems are appropriate, good practice on switching automated systems and what expectations are on firms to use information from transaction alerts to inform the risks of individual customers and, reference to the importance of oversight, resource and expertise.

(4) Cryptoassets

Following the FCA becoming the supervisor for certain cryptoasset businesses in January 2020, explicit reference will now be made to the fact that cryptoasset businesses should consult the FC Guide when designing their financial crime systems and controls to comply with their obligations under the MLRs and UK Financial Sanctions regime.
The FCA is also proposing additions to the sections on risk assessment, handling higher risk situations and fraud.

(5) Consumer Duty

The FC Guide will also make it clear that firms should consider whether their systems and controls are proportionate and consistent with their obligations under the Consumer Duty.

Comment

The FCA has again reiterated in the Consultation that financial crime does enormous damage to society, undermining market integrity and consumer confidence and recognised the ongoing and collective effort from the FCA, regulated firms, the Government and law enforcement to tackle and reduce financial crime. This effort coupled with the pending introduction of the mandatory reimbursement scheme relating to authorised push payment fraud (in October 2024) highlights the industry’s commitment to fighting financial crime.

Whilst the FC Guide does not contain rules and does not impose new requirements on firms, financial services firms are required to establish proportionate financial crime systems and controls and are expected to consider how the FC Guide may help to ensure they have effective systems to (1) reduce financial crime (2) maintain confidence in the financial system and (3) provide good outcomes for consumers (in consideration of the Consumer Duty). In addition, on 19 March 2024, the FCA set out its business plan for 2024 and the first of its 13 public commitments is to reduce and prevent financial crime. It will do this by continuing its proactive data-led supervision of financial services firms.

It is therefore important that firms both consider and feedback on the proposals suggested in the Consultation and ensure their financial crime systems and controls are up to date and operating effectively.

The FCA has asked that firms respond to the Consultation by 27 June 2024.

Contributor: Kaileigh Hunter

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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Date published

08 May 2024