Duncan ScottHM Treasury has published its “Anti-money laundering and countering the financing of terrorism: Supervision Report 2020-22“. The report addresses the performance of anti-money laundering (“AML“) and countering the financing of terrorism (“CFT“) supervisors in the UK, including the Financial Conduct Authority (“FCA“), Gambling Commission, HMRC (in respect of estate and lettings agencies) and Professional Body Supervisors in the accountancy and legal industries.
The report begins by acknowledging the review undertaken of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “MLRs“) earlier in 2022 and the subsequent coming into force of a statutory instrument granting increased powers to supervisory bodies to tackle money laundering threats from cryptoasset firms by:
- improving the ability for supervisors to monitor trust and company service providers;
- allowing supervisors to directly request Suspicious Activity Reports (“SARs“) from their members;
- removing areas from scope of the MLRs where they present a sufficiently low risk; and
- granting additional powers to HMRC and FCA to enhance their supervisory capabilities.
The report explains the context in which it has been produced and, in particular, the impact that the Covid-19 pandemic and Russia’s invasion of Ukraine have had on its content.
As a consequence of the pandemic, the FCA conducted only ‘desk based reviews’ (“DBRs“) during the period covered by the report. It reported that of the firms subject to a DBR in 2020-21, 28% were compliant, 65% generally compliant, and 7% non-compliant. Of the firms subject to a DBR in 2021-22, 36% were compliant, 13% generally compliant, and 22% non-compliant, with the remaining 29% awaiting an outcome at the time of this report’s publication. Frequent breaches identified by FCA included inadequate:
- customer due diligence procedures;
- enhanced due diligence, specifically in relation to politically exposed persons;
- client risk assessments;
- firm-wide risk assessments;
- training of staff responsible for AML supervision; and
- documentation of risk-assessments and measures taken to monitor risk.
During the period covered by the report, FCA issued seven fines under the MLRs and the Financial Services and Markets Act 2000 for a total sum of over £500m.
This included FCA’s first criminal prosecution of a regulated firm under the MLRs, charging NatWest with three offences in connection with its failure to properly monitor the activity of a commercial customer, resulting in a fine of £264.8 million.
FCA currently has 38 AML investigations open, and 75 investigations open into suspicions of insider dealing, as part of their agenda to promote clear and fair markets. They have also submitted over 650 SARs to the National Crime Agency over the past two years.