The UK is poised to become an even less welcoming place for those intent on money laundering and one of the FCA’s avowed top priorities is stopping any illicit flows of cash.
So the regulator is focused on visits, following up on tip-offs and has introduced a new financial crime reporting policy.
Notably, firms are now required to file an annual financial crime return, with the data used to assess the nature of risks within the industry. They must also now be fully up to speed with the new Money Laundering Regulations 2017, which replaced and expanded on the former rules from 2007.
Along with these regulations, there is also the new Criminal Finances Act 2017, which makes it easier for authorities to recover the proceeds of crime and tackle money laundering.
Certainly this year has seen a far more robust regulatory landscape and for risk managers, it means an end to the former tick box approach and a far more active role to play in ensuring stringent procedures are in place. Some of the requirements now include:
- Conducting money laundering and terrorist financing risk assessments
- Implementing policies and controls to comply with the regulations
- Ensuring these are applied across a group structure if relevant
- Having strong internal controls and well trained staff
- Ensuring appropriate managers are approved
- Meeting the new due diligence requirements, including for politically exposed persons
- Ensuring record keeping and data protection are compliant
Money laundering can be small scale or large and can occur outside of the regulated financial services industry, such as in the purchase of investments such as art or gold.
But, where deposits or transfers occur within a regulated environment, there is now a far more focused and powerful regulatory spotlight shining on those making the checks.
Overall, it makes sense to take a fresh look at procedures, business relationships and whether there are any geographic factors that could impose additional risk.
And that includes having a zero tolerance approach to any customer that cannot meet verification requirements – so for a business, this means official proof of name, registration numbers, addresses, the principal location, the law to which they are subject, its constitution and names of senior management.
Existing penalties relating to money laundering remain in place, but there is also a new offence relating to any person who recklessly makes a false statement in the context of a money laundering investigation - they can now be faced with a fine and two years imprisonment.
Meanwhile the regulator has made it clear that it will punish those that do not take AML seriously and it will also ensure that those instructed to make changes do so effectively.
Lessons from Sonali
This can be seen in the case of Bangladeshi-owned Sonali Bank UK, which is said to be on the brink of insolvency and is likely to be wound down by the regulator.
Recently, the Royal Bank of Scotland restricted transactions on Sonali’s dollar account because of anti-money laundering weaknesses. This followed on from intensive investigations by the FCA and PRA and in October 2016, Sonali Bank UK was fined £3.25 million for serious failings relating to its AML systems and governance.
At the time, the FCA said it found weaknesses affected almost all levels of the bank’s business. It also criticised Sonali for not setting a stronger cultural tone about preventing money laundering. Indeed, Steven Smith, the bank’s former money laundering officer was personally fined £17,900 by the FCA and banned from performing the job or any compliance oversight functions at regulated firms. This was despite the fact he said he has insufficient support from management and had highlighted problems.
Certainty now is the time to shape up – whether using civil or criminal prosecutions, the regulator wants to ensure that all regulated firms are sitting up and taking notice – expect more enforcement action in 2018.