Financial crime oversight in corporate finance firms “shows gaps” states FCA

Corporate finance firms help businesses to raise money by connecting them with investors or lenders and are vital to the growth and success of the UK’s economy, in turn making effective financial crime controls essential.

Circa 11% of responding firms reported having no documented business-wide risk assessment, which is a requirement under the Money Laundering Regulations. Without a business-wide risk assessment, firms are leaving themselves – and the wider market – vulnerable to money laundering, fraud and other forms of financial crime.

Other findings from the survey that highlight areas for improvement include the following:

*10% of firms stated they did not retain documented evidence of customer due diligence

*29% of principal firms said they didn’t conduct financial crime risk assessments for their appointed representatives

*6% of principal firms reported not monitoring their appointed representatives’ compliance with financial crime regulations or conducting on-site visits or audits

Good practice evidenced

The Financial Conduct Authority also identified examples of good practice. This encompassed firms regularly updating their business-wide assessments to reflect emerging risks, plus using detailed management information to strengthen financial crime controls.

In addition, 97% of survey respondents affirmed that they regularly report financial crime concerns to members of the senior management.

Andrea Bowe, director of the specialist directorate at the Financial Conduct Authority, said: ‘Corporate finance firms play a vital role in the UK’s capital markets. Their exposure to money laundering risks means it’s essential that they have strong and proactive controls in place.”

Bowe continued: “While some firms may be meeting expectations, many may be falling short of minimum regulatory requirements. We are sharing our findings so that firms can address any gaps in their control frameworks. We’re also writing to potentially non-compliant firms to set out improvements they need to make.”

The survey is one element of several initiatives planned over the next five years to strengthen oversight and raise standards across the financial services sector.

Response to Government decision 

Further, in responding to the Government’s recent decision on reforming anti-money laundering and counter-terrorism financing supervision, Steve Smart (joint executive director of enforcement and market oversight at the Financial Conduct Authority) commented: “We recognise the benefits of an improved regime for anti-money laundering supervision. These changes will simplify the supervision of professional services, ensure more consistent oversight and help us to identify and disrupt crime.”

The Financial Conduct Authority will work closely with the Government, the Office for Professional Body Anti-Money Laundering Supervision, Professional Body Supervisors, His Majesty’s Revenue and Customs, the firms it will be supervising and others to assist the UK in fighting financial crime.

Smart concluded: “The new regime will create enhanced opportunities for collaboration with key partners, including law enforcement, in order to tackle money laundering. The Financial Conduct Authority operates nationwide and we anticipate having a significant presence for this new regime in our offices outside of London.”