FCA Financial Crime Analysis: Key Takeaways
On 7 October, the FCA published their analysis of firms’ 2017-2020 REP-CRIM data. In this article, we look at the top takeaways that could affect your firm.
Banks, building societies, mortgage lenders and some other firm types are required to provide an annual crime data return, which the FCA use to aid their supervision of these firms against the requirements in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
Among other key takeaways, the number of Suspicious Activity Reports (SARs) reported to the National Crime Agency increased between 2017/18 and 2019/20 by around 22%. Analysis of the data shows “an upward trend in the number of SARs reported internally to MLROs and the NCA, but a declining trend of the number of SARs disclosed to the NCA under the Terrorism Act 2000.” Around half of the SARs internally reported to MLROs came from three firms, and retail banking contributed over 78% of these, and about 85% of SARs, reported to the NCA.
Automated sanctions are increasing year on year, with the data showing around a 16.5% increase over the three reporting periods analysed. Two-thirds of the REP-CRIM submissions show automated screening against relevant sanctions. Automated sanctions are not used in every firm, however, with data showing that even some retail banking firms do not use it. A breakdown of firms that do not undertake automated sanction screening shows that the Investment Management sector has the most firms reporting that they do not use it.
The number of customers who were exited has more than doubled during the previous three years and now amounts to around 0.16% of total customers – 761,437 individuals - across all submissions for the 2019/20 period. The number of customers refused for financial crime reasons has also risen steadily across the three-year reporting period, from 1.46 million (0.37% of customer relationships reported) in 2017/18 to 2.05 million (0.45% of customer relationships reported) during 2019/20.
The report also asks firms to state their top three fraud concerns. The FCA highlight that this might not be representative of the sector as a whole; only of a section of their supervised population under the MLRs as this set of questions is voluntary. Cybercrime is a top concern, with phishing, identity fraud and theft and hacking very high on most firms’ lists.
Despite relatively few criminal investigations over the preceding years, there are signs that the FCA is turning to an increased focus on AML, having sent letters to chief executives of UK retail banks in May 2021, stating concerns about weaknesses in banks’ money laundering procedures. The FCA is also commending an investigation into the digital bank Monzo for potential AML breaches.
Also on the radar are the ongoing changes to the UK’s legislative framework. In post-Brexit UK, the government is building its own international sanctions regime, which will be enforced by the Office of Financial Sanctions Implementation (OFSI). The Sanctions and Anti-Money Laundering Act 2018 came into force on 1 January 2021 and allows the UK to impose a range of sanctions – including financial and trade sanctions – and money laundering regulations. These bring about some changes from the previous regime which UK firms will need to understand and navigate.
Some EU designated persons are no longer on the UK list and therefore are not subject to UK financial sanctions. However, the UK has added a number of newly designated persons to the UK list.
The entities affected by UK sanctions may have changed. For example, non-UK incorporated subsidiaries are now covered by UK financial sanctions, which means that EU-incorporated subsidiaries are now also covered.
The new Global Anti-Corruption Sanctions Regulations 2021 aim to tackle the issue of corruption – to which around 2% of global GDP is lost every year – through asset freezes and travel bans. This replaces the jurisdiction-based regimes.
There is a change to the definition of “ownership and control”; under the UK regime, funds or economic resources are considered as owned, held or controlled by a designated person if they are owned, held or controlled by someone who is themselves owned or controlled by a designated person, through their holding more than 50% of the shares or voting rights in an entity, or they have the right to appoint or remove a majority of the directors, or it is reasonable to expect a designated person could ensure the affairs of the entity are conducted in accordance with their wishes.
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