2. Our anti-money laundering supervision strategy
Our supervisory programme
Our rules require firms to have effective, proportionate and risk-based systems and controls to ensure they cannot be used for financial crime. Around 15,000 of the firms we regulate are also required to comply with the Money Laundering Regulations 2007 (the Regulations), which give effect to the Third EU Money Laundering Directive. We supervise those firms’ compliance with the Regulations.
The quality of firms’ AML systems and controls remains high on our agenda. Our financial crime specialist supervisors continue to carry out extensive work on both AML and anti-bribery and corruption, as these are the aspects of crime where the market incentives for firms are weakest. In the absence of legal or regulatory prohibition, money launderers and corrupt individuals could be attractive as potentially profitable customers, and firms and their employees could be tempted to pay bribes to secure business.
Our approach to AML supervision is risk-based, in line with our broader supervisory approach and international guidance on AML supervision. So we look for the most effective and proportionate means to ensure good AML standards in regulated firms, and allocate our resources to focus most closely on those firms and activities that present the highest risks of money laundering.
We have continued to implement our AML supervision strategy. This includes two proactive AML supervisory programmes. The first is the Systematic Anti-Money Laundering Programme (SAMLP). A programme of regular thorough scrutiny, this covers 14 major retail and investment banks operating in the UK, as well as their overseas operations with higher risk business models or strategic importance. So far we have completed 11 SAMLP assessments, with assessments since 2014 also including anti-bribery and corruption work where appropriate.
The second is a programme of regular AML inspections for a group of other firms (mostly smaller banks) presenting higher financial crime risk. The population of these firms is dynamic, with firms moving in and out depending on risk.
We also use thematic reviews as a key component of our risk-based approach to effective AML supervision. Our most recent published AML thematic reviews are AML/sanctions controls in smaller banks (2014), and Managing bribery and corruption risks in commercial insurance broking: an update (2014).
In late 2014 / early 2015, we visited several consumer credit firms to assess their financial crime systems and controls. We wanted to understand the level of money laundering and other financial crime risk in this sector, which we had only recently started to regulate, and to assess how firms were managing the risk. We found that firms needed to enhance their understanding of financial crime issues in some areas. Our forthcoming webcast will set out our expectations of consumer credit firms on financial crime.
Our thematic reviews continue to attract a lot of interest, both in the UK and internationally. We use the findings to update our publication Financial Crime: a guide for firms (the Guide). The Guide includes examples of good and poor practice, and makes our expectations of firms clear to help them enhance their own AML frameworks. Around 2,000 users access the Guide each month.
We also undertake targeted outreach including industry webinars and sector-specific presentations of thematic review findings. For example, a webinar held in early 2015 on the findings of our 2014 review of small banks’ AML controls attracted over 1,000 online viewers and allowed viewers to question a panel of FCA AML specialists on our expectations. A similar webinar was held the same day on our thematic review of anti-bribery and corruption controls in commercial insurance brokers and attracted nearly 500 viewers.
We may also identify crystallised or emerging risk through our thematic reviews. In the last two years we have found failings in eleven firms serious enough to take formal supervisory action. The types of supervisory tools we used are discussed in the section on ‘outcomes’ (chapter 3).
In addition to our proactive supervision programmes, we also receive intelligence and information about financial crime risks and events from a variety of sources including whistleblowers, law enforcement agencies and other regulators. We assess this information against what we already know about the firm or individual and use a risk-based approach to decide what action we need to take.
In the last two years we have considered over 230 referrals of this sort and taken action on over 140. In most of these cases, we have used close ongoing supervision to mitigate and monitor the risks. But in several instances we have taken more formal action, restricting the firm’s business or requiring them to appoint skilled persons to assess the weaknesses we have identified and put them right.
We are currently enhancing our supervision strategy to achieve greater reach over the population of firms we regulate.
We propose to introduce a financial crime data return covering a significant proportion of those firms we regulate which are subject to the Money Laundering Regulations 2007. This will enable us to identify more accurately those firms presenting the highest financial crime risks. As part of our drive to increase transparency, we will look at whether it is appropriate to publish some of this data in aggregate form. Firms tell us they want more information on money laundering risks. Publishing these aggregate results should help them. We expect to issue a Policy Statement in July 2016 and to receive the first run of data in early 2017.