What is this article about?
The FCA’s proposed updates to its Financial Crime Guide (FCG)
Why is it important?
It sets clearer expectations for financial firms, including cryptoasset businesses, to improve their systems and controls against financial crime.
What’s next?
Firms should review the proposals and prepare to implement changes to the FCG after the consultation period ends on 27 June 2024
On 25 April 2024, the FCA published a Consultation (CP24/9) on proposed updates to its Financial Crime Guide (FCG) – these updates are intended to set clearer FCA expectations and help firms assess the adequacy of their financial crime systems and controls.
In addition to introducing changes to guidance on sanctions, proliferation and transaction monitoring, the FCA is proposing to make clear that cryptoasset businesses that are registered with the FCA for anti-money laundering (AML) purposes should have regard to the FCG. Proposals include:
The FCA intends to provide greater clarity on (i) good and poor practices in the use of screening tools, (ii) guidance on governance arrangements and use of management information and (iii) further guidance on the interplay between KYC procedures and managing sanctions risk. Updates to note include the expectation that firms consider their reporting obligations to the FCA when they identify breaches of sanctions resulting from significant systems and control failures and an increased focus on senior management responsibility.
Proposals include (i) new self-assessment questions and examples of good and poor practices clarifying expectations on appropriate triggers in automated systems, (ii) good practice recommendations around switching between automated systems and the FCA’s expectations on the use of transaction alerts, (iii) good and poor practices on evaluating the effectiveness of monitoring systems and (iv) guidance on the importance of oversight, resource and expertise for effective screening.
Finally, the FCA intends to update the FCG to make clear that financial crime systems and controls must be consistent with the Consumer Duty. Payments and e-money firms should also remember the FCA’s guidance on Consumer Duty implementation on the freezing accounts for financial crime suspicions and how account suspensions should be managed in light of the Consumer Duty.
Compliance failures in the financial crime space, including failures to meet FCA expectations on effective systems and controls, are an area of significant regulatory risk for firms. Financial crime compliance and strong systems and controls for countering financial crime remain priority areas for FCA supervision and enforcement.
In the supervisory space, the FCA is increasingly focused on financial crime systems and controls – using its investigatory powers under s.166 of the Financial Services and Markets Act 2000 to carry out reviews into firms’ controls and require firms to undertake remediation processes. In parallel, the FCA has been using its ‘Voluntary Requirement’ powers to request that firms put in place business restrictions on the onboarding of new clients or certain client sectors until financial crime failings have been remediated.
Financial crime is also an enforcement focus. In 2023, the FCA issued 3 significant fines against firms for financial crime failings, totalling over £18 million. At the end of FY22/23, the FCA also had 30 cases open investigating financial crime issues, including 5 criminal cases and 9 dual-track criminal and civil cases.
The expectations set out in the final updated FCG should inform amendments to firm policies and procedures to ensure compliance and mitigate supervision and enforcement risk.
The consultation closes on 27 June 2024. Firms should review the proposals, provide comments to the FCA before this date, and be prepared to act on changes to the FCG once implemented.
Crypto firms, in particular, should expect the FCA to closely scrutinise their approach to compliance with the FCG as the UK’s regulatory regime for cryptoassets begins to take shape and crypto firms prepare for authorisation.
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