FCA firms about common failings we have found in firms’ financial crime controls

We have written to CEOs of Annex 1 firms setting out our findings from our recent assessments of how firms are complying with money laundering regulations.

Annex 1 businesses, which include some lenders, safe custody providers, money brokers and financial leasing companies, undertake specified activities which mean they must be registered and supervised by us for their compliance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).

There are approximately 1,000 Annex 1 registered firms, which are not authorised or subject to wider FCA regulation.

Financial crime is a priority for us and initial findings from our data-led review of a sample of Annex 1 firms indicates that some are still not getting the basics right. We found common issues including:

Discrepancies between firms’ registered and actual activities.
Financial crime controls which had not kept pace with business growth.
A failure to risk assess their own or their customers’ activities properly.
Inadequate resourcing and oversight of financial crime issues and requirements.

All Annex 1 firms should assess their financial crime controls against the common weaknesses we found within the next 6 months. Where they identify areas where they are falling short of our expectations, they need to act promptly to resolve them.

Where firms do not take suitable steps in response to our letter, they could face regulatory action, including possible enforcement action.

Emad Aladhal, Director of a team of specialists at the FCA dedicated to reducing and preventing financial crime and fraud said:

'Poor financial crime controls make it easier for criminals to abuse the financial system and damage the integrity of UK markets.

'We have made fighting financial crime a priority and though we’ve seen progress generally amongst the firms we supervise, this report highlights some basic failures amongst Annex 1 firms which are not subject to our full regulatory regime.

'These must be addressed.'

Our fighting financial crime update at the half-way point in our 3-year strategy indicates we are making progress. We regularly share good and poor practice so that firms understand our expectations and strengthen their response. It takes the effort of both public and private sectors to reduce and prevent financial crime and we are committed to playing our role to achieve that ambition.