Financial Crime Developments
2022 saw the beginnings of a sea-change in financial services regulation, and 2023 shows no sign of the complex changes – in both regulatory content and framework – slowing down. The Edinburgh reforms could usher in the biggest framework transformation in a decade, and to keep everyone busy in the meantime, the Consumer Duty will be implemented in mid-2023.
With this backdrop, what are the principal themes for the coming year? Regardless of supervisory approach, one key focus is financial crime.
FCA actions against firms for breaches of financial crime controls have increased markedly and steadily over the previous three years.
On 9 December 2022, the FCA issued an eye-watering £108m fine to Santander UK Plc for failing to “properly oversee and manage its AML systems, which significantly impacted the account oversight of more than 560,000 business customers.”
The FCA found that Santander’s systems were ineffective, leaving them unable to verify information provided by customers about the business they would be undertaking.
The failures were known about, but poorly managed, with inadequate attempts to address the problems leading to a period of almost five years during which the Bank operated under a “severe risk” of money laundering and financial crime.
The findings highlighted a number of concerning incidents, including a case where a customer opened a small translations business with stated expected monthly deposits of £5,000, but within six months was receiving millions in deposits which were then transferred to separate accounts. Santander’s AML team recommended the account for closure in March 2014, but this was not acted on until September 2015, allowing the customer to transfer millions through the account.
The FCA found that Santander failed to identify and deal with ‘red flags,’, that it understood that there were significant weaknesses in its AML systems and controls, but that improvement plans did not properly address the issues.
This was the largest of the fines issued in 2022 for breaches related to financial crime risk. Whilst the number of fines issued in 2022 were not a significant increase on the number issued in 2021, there is a pattern of increased focus on effective AML and financial crime monitoring and control. Reducing and preventing financial crime is one of the FCA’s key outcomes under their commitment to reduce and prevent serious harm, and investigations and – if warranted – consistently high fines are likely to continue throughout 2023.
The FCA is not only focusing on large-scale examples either. The regulator fined Gatehouse Bank £1.5m for poor anti-money laundering checks in October 2022. The regulator found that Gatehouse failed to conduct sufficient checks on its customers based in countries with a higher risk of money laundering and terrorist financing and failed to undertake the correct checks when some customers were classed as PEPs. It described its findings as ‘serious shortcomings’ particularly in customer due diligence, enhanced due diligence, ongoing monitoring and internal controls that could have enabled Gatehouse to discover and put right those shortcomings. The FCA found that the three lines of defence model the Bank used did not operate effectively.
The Wolfsberg Group has updated its financial crime principles – the first amendment since 2014. The updates will be of interest to correspondence banks. They aim to promote effective risk management and set out a solid foundation for the exercise of sound business judgement.
On 9 December, the UK Government announced a new wave of sanctions, targeting corruption and human rights abuses. Affected individuals are subject to an asset freeze and travel ban; all affected entities are subject to an asset freeze. More information can be found here.
HM Revenue and Customs has published updated guidance on money laundering supervision for high value dealers, in light of updates to the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 published over the last three years. The guidance is designed to help high value dealers meet their requirements, including customer due diligence, record keeping and reporting suspicious activity.
Our online AML and Financial Crime training course takes learners through the basics of Anti-Money Laundering and Financial Crime, covering types of crimes, responsibilities, legislation, fraud and AML expectations, due diligence, reporting and recording. Each online course, priced at just £20, is accessible at the delegate’s convenience, and provides a certificate upon successful completion, allowing firms to track and record each user’s progress.
For large groups, we can offer a simplified enrolment service and pricing, simply email Robert.firstname.lastname@example.org.