The UK financial services sector is a prime target for criminal activities including fraud, theft, tax evasion, money laundering and counterfeiting. The FCA has highlighted financial crime as one of its key priority areas for 2017. “It is imperative that the UK financial system has appropriate safeguards to prevent financial crime”.
Rob Gruppetta, Head of the Financial Crime Department commented recently: “The social and economic costs of serious and organised crime to the UK were assessed in the past at £24bn”.
It's clear from our conversations with UK Financial Services organisations that financial crime is considered a key risk area and many have robust risk controls and incident management programmes in place. However, we thought it useful to highlight some priority areas worth considering for 2017.
The Financial Crime Return (REP-CRIM) comes into effect
The reporting obligations for the new REP-CRIM took effect on 31 December 2016 and require affected firms to submit a return within a submission period of 60 business days from year end. Therefore, the first REP-CRIM return for firms with a year end of 31 December will now be due in March 2017.
The FCA first stated its intention to use the REP-CRIM return as a means of replacing the existing ad-hoc financial crime risk data collection and notifications in December 2015. Following a process of industry consultation, the FCA published its policy statement ‘PS16/19: Financial Crime Reporting: feedback on Chapter 6 of CP15/42 and final rules’, which included a number of changes and concessions for various firms.
Some of the key changes were:
- Firms including banks, building societies and investment organisations that are subject to the Money Laundering Regulations (MLRs), will only be required to submit information for the areas of their business subject to the MLRs
- General insurers, insurance intermediaries and credit unions will not be required initially to submit a return, however, general insurance firms are expected to be subject to the rules at a later date
- There is a current exemption for mortgage intermediaries, retail investment intermediaries, investment firms, consumer credit firms and electronic money institutions with total annual revenues of less than £5m
- The 30 day deadline has been increased to 60 business days
- The scope of reporting for groups and multi-jurisdictional entities, has been further clarified. This includes:
- the option to submit on a group or a solo basis;
- to only provide information about the jurisdictions in which the firm operates, or has assessed and classified as high risk, within the last two years;
- the application of their own definition of ‘Politically Exposed Persons’ (PEPs) when reporting on PEP relationships
...and a few more besides. Please refer to the policy for more information.
Information on the prescribed format of the return and guidance notes will be available in the SUP Sourcebook and the return itself will be submitted online through the GABRIEL reporting system.
Compliance with Potential Corporate Law Changes
In view of 2016’s ‘Corporate Failure to Prevent the Criminal Facilitation of Tax Evasion offence’, many believe that there is a possibility that we will see a change in the law governing economic crime, which is likely to follow similar principles to previous enforcements. If businesses are found not to be complying, they would need to provide evidence that they have procedures in place to ensure that the conduct in question does not happen again.
Recommendations from the Financial Action Task Force (FATF)
In 2012, the FATF updated their recommendations in order to provide governments with more effective tools to address some of the most challenging areas of financial crime, relating to money laundering and terrorist financing.
These recommendations communicate several key messages:
- The importance of reporting and following up on every suspicious transaction
- The importance of ensuring customer data is as accurate and as up-to-date as possible
- The need for keeping precise, relevant records
- The need for relevant and effective staff training
- The need for comprehensive risk management policies and procedures
The FCA has stated: “We will continue to be a major participant in the FATF and an FATF mutual evaluation review of the UK is scheduled for late 2017”.
Compliance with Anti-Money Laundering Directive (4AMLD)
In July 2016, the European Commission disclosed its proposal to further reinforce the European Union’s rules on anti-money laundering (“AML”), to counter terrorist financing, tax evasion and increase transparency around beneficial ownership.
The requirements of the fourth directive are centred around enhanced due diligence when obtaining information about customers established in High-Risk Countries. The directive also outlines a consistent approach to beneficial owner checks, incorporates a wider range of criminal offences to money laundering and reconsiders suspicious reporting rules. Importantly, it clarifies where senior management approval is required, for example, in the case of a high risk transaction. Business are required to be compliant with 4AMLD by mid-2017.
It is clear that financial crime is a dynamic and constantly changing challenge that is very much on the regulators radar. Financial services organisations will need to ensure that they have a robust and flexible way of gathering and analysing risk information if they want to protect themselves against financial and reputational loss, as well as meeting the needs of the regulator.
FCA business plan: https://www.fca.org.uk/publication/corporate/business-plan-2016-17.pdf
We believe the information in this article to be correct at the time of going to press. Whilst try to ensure that the information contained in this article is accurate, we do not warrant the accuracy, completeness or usefulness of any information contained in these pages and cannot accept any responsibility for any loss occasioned to any person as a result of action or refraining from action as a result of any item herein.