In a recent move, the Financial Conduct Authority (FCA) has taken a significant step in addressing the prevalent anti-money laundering (AML) shortcomings among Annex 1 firms. These firms, encompassing lenders, safe custody providers, money brokers, financial leasing companies, and those offering payment services, have been targeted by the FCA due to their classification under the Money Laundering Regulations.
The FCA’s stern warning comes in the form of a “Dear CEO Letter,” highlighting key areas of concern where Annex 1 firms have faltered in meeting their obligations under the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
Identifying key concerns
The FCA’s letter specifically outlines several critical areas where Annex 1 firms have displayed deficiencies:
- Business model discrepancies: There exists a disconnect between the registered activities of these firms and their actual operational activities. Furthermore, financial crime controls have failed to keep pace with the rapid growth of these businesses.
- Risk Assessment weaknesses: Annex 1 firms have demonstrated inadequacies in conducting comprehensive Business Wide Risk Assessments and Customer Risk Assessments, leaving significant gaps in their AML frameworks.
- Due diligence and monitoring: Policies lack specificity, leading to ambiguity in the actions required for compliance with MLRs, particularly concerning due diligence, ongoing monitoring, and the establishment of effective procedures.
- Governance and training: Lack of resources dedicated to financial crime, insufficient training on financial crime matters, and an absence of clear audit trails for financial crime-related decision-making have been noted.
Call to action
Emphasising the critical nature of the situation, the FCA urges Annex 1 firms to conduct a comprehensive assessment of their financial crime controls within the next six months. It is imperative for these firms to promptly address any identified shortcomings to align with regulatory expectations.
Failure to take adequate steps in response to the FCA’s directives may result in regulatory action, including enforcement measures. Emad Aladhal, Director of the FCA’s dedicated team focused on reducing and preventing financial crime, underscored the significance of robust financial crime controls in safeguarding the integrity of UK markets, stating:
“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.”
Commitment to combat financial crime
The FCA’s efforts to combat financial crime are part of a broader strategy aimed at reducing illicit activities within the financial sector. While progress has been noted, the recent findings underscore the need for heightened vigilance and proactive measures among Annex 1 firms.
Collaboration between the public and private sectors is essential in achieving the overarching goal of minimising financial crime. The FCA remains steadfast in its commitment to providing guidance and support to firms, fostering an environment of compliance and integrity.
How Neopay can help
In light of the FCA’s warning, Neopay stands ready to assist payment firms in strengthening their AML frameworks and ensuring compliance with regulatory requirements. With our expertise in regulatory compliance and risk management, we offer tailored solutions to address the specific challenges faced by financial institutions.
From conducting comprehensive risk assessments to developing robust policies and procedures, Neopay provides the necessary support to enhance financial crime controls and mitigate regulatory risks. Our team of experts is dedicated to assisting payment firms in navigating the complex landscape of AML regulations and safeguarding their businesses against illicit activities.
To find out more about how we can support you business, click here.
To read a copy of the FCA’s letter to Annex 1 firms, click here.
