Tracey McDermott, acting director of enforcement and financial crime at the Financial Services Authority (FSA), today highlighted the continuing importance of financial crime within the future UK regulatory landscape.
Speaking at the FSA’s financial crime conference, Tracey McDermott explained that the Financial Conduct Authority (FCA) will assume the FSA’s responsibilities on financial crime and will continue to focus on “the use of firms as a conduit for financial crime”.
She added that the FCA will continue the FSA’s intensive and intrusive supervision of financial crime issues and that the FCA will pursue the objectives of “keeping crooks out of finance, encouraging industry to strengthen its defences, and educating and warning consumers about the dangers they may face”.
The FSA has also today published three documents relating to financial crime:
- a consultation paper which proposes a new guide designed to help firms reduce the risk of their business being used to facilitate financial crime;
- a thematic review of how banks manage their money laundering risks, particularly around their management of high risk customers including Politically Exposed Persons (PEPs), correspondent banking relationships and wire transfer payments; and
- a thematic review assessing the adequacy of lenders’ systems and controls to detect and prevent mortgage fraud.
The proposed financial crime guide aims to improve firms' understanding of the FSA’s expectations in this area and collates existing FSA statements on financial crime, drawn mainly from thematic reviews. It provides guidance on anti-money laundering, terrorist financing, fraud, data security, bribery and corruption, sanctions, and weapons proliferation financing.
The anti-money laundering thematic review focused on how banks manage high risk customers including PEPs, correspondent banking relationships and wire transfer payments. The review found that some banks appeared unwilling to turn away, or exit, very profitable business relationships, including with PEPs, where there appeared to be an unacceptable risk of handling the proceeds of crime. Among other findings, three quarters of the banks sampled failed to take adequate measures to establish the legitimacy of the source of their customers’ wealth and the source of the funds to be used in the business relationship. The FSA has serious concerns about these findings. So far, two banks have been referred to enforcement following the identification of apparent serious weaknesses in their systems and controls for managing high risk customers including PEPs.
The mortgage fraud thematic review assessed the adequacy of lenders’ systems and controls to detect and prevent mortgage fraud. The report showed that, although lenders have made some improvements, there are still weaknesses common to many firms. As a result of the findings, some lenders will have to implement remedial programmes to strengthen their anti-fraud systems and controls. The FSA will continue to focus on lenders’ compliance in this area.
Notes to editors
- Speeches from the FSA’s financial crime conference will be available on the FSA website later today.
- The financial crime guide consultation closes on 21 September 2011. Any comments on guidance in the thematic reviews should be given through the consultation process.
- The banks’ management of high money laundering risk situations thematic review is available on this website.
- The mortgage fraud against lenders thematic review is available on the this website.
- Politically exposed persons (PEPs) are individuals whose prominent position in public life may make them vulnerable to corruption. The definition extends to immediate family members and known close associates.
- Firms are subject to a number of requirements relating to financial crime. Most are subject to the Money Laundering Regulations 2007; and all must comply with the Proceeds of Crime Act 2002 and the UK sanctions regime. When the Bribery Act 2010 comes into force on 1 July 2011, failing to prevent bribery will become a corporate offence.
- FSA Principles require firms to conduct their business with integrity and with due skill, care and diligence; and to take reasonable care to organise and control their affairs responsibly and effectively with adequate risk management systems. Rules in the Senior Management Arrangements, Systems and Controls (SYSC) sourcebook, SYSC 3.2.6 R and 6.1.1 R, also require firms to establish, implement and maintain adequate policies and procedures for countering the risk that they might be used to further financial crime. There are further Handbook provisions in SYSC 3.2.6A – 3.2.6J and SYSC 6.3 relating specifically to firms’ anti-money laundering systems and controls.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.