FCA money laundering review finds gaps in brokers’ defences.

The FCA has released a new report based on work conducted since 2019 on the money laundering risks through the markets, focusing on wholesale brokers.

• Press Releases First published: 23/01/2025 Last updated: 23/01/2025.

This report will assist firms involved in the capital markets in improving their controls and preventing financial crime.

The FCA

1. Focused on wholesale brokers because of their important role in facilitating deals in capital markets.
2. Engaged with other market participants to understand broader risks, issues, and good practices, recognising that collaboration with and across the industry is essential to delivering real improvements.

FCA SAYS

    3. Good progress has been made since the FCA’s Thematic Review in 2019, including customer risk                 assessments, onboarding processes, governance and oversight, and collaboration between trade                 surveillance and transaction monitoring teams.

1. 1. 2019 - https://www.fca.org.uk/publication/thematic-reviews/tr19-004.pdf

However, the FCA identified areas where firms needed to improve to better protect against money laundering, including:

1. An underestimation of the risks money laundering firms are exposed to
2. Over-reliance on others in the transaction chain, completing appropriate due diligence checks on customers.
3. Limited information sharing between firms.
4. Insufficient awareness of money laundering through the “Markets Suspicious Activity Reports Glossary Code”

Key findings on progress:

1. BWRA - Lack of consideration/underestimation of the financial crime risks and how firms were exposed.
2. CRA—Generally, they found that firms' customer risk assessments considered various factors. However, some firms failed to document their methodology or rationale for the risk ratings applied to customers and where overrides were made. Additionally, some firms did not distinguish between different PEPs.
3. KYC / CDD - Generally, they found firms had proportionately built CDD linked to CRA, with firms considering a range of triggers to perform ongoing CDD/refreshes. However, they did find a reliance on other parties in the transaction chain to complete due diligence, which is not deemed appropriate. Additionally, many firms do not consider the nature/ purpose of customers' accounts.
4. Governance / Oversight - The FCA seemed optimistic in this area as they identified good governance, including strong MI.
5. Transaction Monitoring—They identified significant challenges with TM. Using TM systems in isolation provided limited success in identifying suspicious activity. Firms were not considering integrating TM to assist with ongoing relationship management alongside risk assessment/ KYC, etc.
6. Investigations / SARs—Limited knowledge was identified on UKFIU SAR glossary codes, which could impact reporting. Although SARs using correct glossary codes have increased, they have seen incorrect/inconsistent use of the glossary codes and the quality of SARs.
7. Training/Resourcing /P&P - Training for AFC has become more commonplace, but the FCA identified a lack of tailored training for their business model. The FCA also identified different resourcing maturity and standards in policies and procedures.

Source Link If You Need It 👉   https://www.fca.org.uk/news/press-releases/fca-review-finds-gaps-remain-brokers-money-laundering-defences