TR19/4: Understanding the money laundering risks in the capital markets

We carried out this thematic review to look at the money-laundering risks and vulnerabilities in the capital markets and, where possible, to develop case studies to help inform the industry.

We sought information to enhance our view of these risks and vulnerabilities. We did not assess the systems and controls of those we visited.

Show TR19/4 (PDF)

Who this applies to

Our findings are likely to be of interest to all firms carrying out business related to the capital markets. In this report, we have defined ‘capital markets’ as financial markets where shares, derivatives, bonds and other instruments are bought and sold. Trade bodies and industry groups relating to capital markets may also be interested.

Our scope

Our visits covered a broad range of market segments, including investment banks, recognised investment exchanges, trade bodies, a custodian bank, clearing and settlement houses, inter-dealer brokers and trading firms. Our focus was primarily on money-laundering risks in the secondary markets, however we have also included a section on primary-market services in our report.

What we found

  • The money-laundering risks we identified are mitigated to an extent by the nature of the firms in the market, however there remain some risks particular to the capital markets.
  • We found that some we visited needed to be more aware of the money-laundering risks in the capital markets and many were in the early stages of their thinking in relation to these risks and needed to do more to fully understand their exposure.
  • We found that effective customer risk assessment and customer due diligence are key to reducing opportunities for money laundering, particularly in the capital markets due to the nature of the transactions.
  • We identified a wide range of approaches to anti-money laundering transaction monitoring and our report highlights some specific challenges and risks relating to this. 
  • We found some participants were not clear on their obligations to report Suspicious Activity Reports and that accountability and ownership of money-laundering risk in the first line of defence needs to increase, rather than being viewed as a compliance or back-office responsibility.
  • The Annex to our report contains a non-exhaustive set of typologies which may help inform risk assessments, transaction monitoring and training.

Next steps

We expect firms to consider their approaches to identifying and assessing the money-laundering risks they are exposed to in light of our report, and we are also considering our supervisory approach in response to this work.