Implementing Financial Crime Prevention: Insights from the FCA’s Definitive Guide

Tackling financial crime is a priority for the FCA. As part of its responsibility to help ensure the integrity of the UK financial markets it requires all authorised firms to have proportionate systems and controls in place to mitigate the risk that they might be used to commit financial crime.

The FCA has operational objectives to:

protect consumers from bad conduct
protect the integrity of the UK financial system
promote effective competition in the interests of consumers

The fight against financial crime is integral to all three of these objectives. The FCA’s Financial Crime Guide (FCG) does not contain rules, it contains guidance and examples of good and poor practices which are derived from the FCA’s own work and guidance from the JMLSG and FATF. The FCA states that the FCG does not form part of the Handbook, but it contains guidance on Handbook rules and principles.

The FCG is in the Regulatory/Registry Guides block of the FCA Handbook. Following and introduction, the FCG has seven sections covering:

a) Financial crime systems and controls

b) Money laundering and terrorist financing

c) Fraud

d) Data security

e) Bribery and corruption

f) Sanctions and asset freezes

g) Insider dealing and market manipulation

The FCG provides practical assistance and information for firms of all sizes and across all FCA supervised sectors on actions they can take to counter the risk that they might be used to further financial crime.

In the introduction to the FCG, the FCA states: “Effective systems and controls can help firms to detect, prevent and deter financial crime. FCG provides guidance on financial crime systems and controls, both generally and in relation to specific risks such as money laundering, bribery and corruption and fraud. Annexed to FCG is a list of common and useful terms. FCG Annex 1 is provided for reference purposes only and is not a list of ‘defined terms’. Where a word or phrase is in italics, its definition will be the one used for that word or phrase in the Glossary to the FCA Handbook.”

In April 2024, the FCA published CP24/9 Financial Crime Updates with comments requested by 27th June. The proposed changes to the FCG are in six areas:

Sanctions: Post Russia’s illegal invasion of Ukraine in 2022, the FCA conducted extensive assessments of firms’ sanctions systems and controls. It proposes to update this section to reflect what it and firms have learned.
Proliferation Financing (PF): The guidance is being updated to ensure PF is explicitly referenced throughout the Guide where appropriate, and to highlight a 2022 update to the MLRs which requires firms to carry out PF Risk Assessments.
Transaction Monitoring: The FCA proposes to set out some key guidance for firms on how they can implement and monitor transaction monitoring systems and support responsible innovation and new approaches, such as use of Artificial Intelligence.
Cryptoassets: Cryptoasset businesses registered under the MLRs have been subject to FCA supervision for AML purposes since June 2020. The FCA proposes to make explicit reference that Cryptoasset businesses should consult the Guide.
Consumer Duty: The CP proposes that the Guide makes clear that firms should consider whether their systems and controls are proportionate and consistent with their obligations under the Duty.
Consequential Changes: The FCA is looking to make consequential changes to the Guide, including replacing expired links, outdated references to European Union rules and refreshed case studies drawing from more recent FCA enforcement notices.

Protecting your firm from financial crime relies on ensuring your clients are who they say they are and assessing the risks that an individual or corporate client poses to your firm. Identifying and verifying your clients are who they say they are – client due diligence (CDD) – is the first step in the fight against financial crime. If you assess your client as a higher risk, you may also want to ask your client to prove the source of the wealth or source of the funds they are investing through your firm.

Identifying individual clients can be completed using an electronic verification system or sight of original documents such as a passport and a utility bill. You also should identify corporate clients and the beneficial owners of corporations or partnerships and the trustees and, where possible, the beneficiaries of Trusts.

It is important that you have robust policies and procedures to reduce the risk that your firm will be used to facilitate financial crime. If you would like Compliance Matters UK Limited to review your compliance systems and controls schedule a free, no-obligation consultancy call with us today.

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