FCA Enhances Financial Crime Guide

Published: May 17, 2024

The Financial Conduct Authority (FCA) has commenced a consultation, inviting feedback on proposed revisions to its Financial Crime Guide (FCG), outlined in consultation paper CP24/9 released on April 24, 2024. These amendments aim to assist firms in evaluating and reinforcing their financial crime frameworks. Seeking input on these draft modifications, the FCA aligns them with recent developments in sanctions, transaction monitoring, cryptoassets, consumer duty, and proliferation financing. This consultation encompasses all FCA-supervised firms and crypto businesses governed by the Money Laundering Regulations (MLRs).

“Firms are encouraged to thoroughly examine the Financial Crime Guide (FCG) and exercise discretion to ensure compliance with legal and regulatory requirements for preventing financial crime.”

What this means:

Serving as a guiding tool, the FCG offers self-assessment questions and examples of effective and ineffective practices, drawn from extensive research conducted by the FCA and external sources. The proposed updates aim to maintain the clarity and relevance of the guide by incorporating the FCA’s latest and most pertinent insights, assisting firms in establishing appropriate controls tailored to their customers and markets.

Key FCG Revisions:

Sanctions: Following Russia’s invasion of Ukraine, the FCA conducted comprehensive assessments of sanctions systems and controls in nearly 170 firms. The proposal integrates the findings of these assessments and suggests updates based on evaluations of firms’ sanctions frameworks.

Proliferation Financing: The FCG now explicitly addresses proliferation financing (PF) across relevant sections, integrating guidance on PF risk assessment in accordance with the 2022 MLR updates.

Transaction Monitoring: Guidance is provided on implementing and overseeing transaction monitoring systems, endorsing innovative methods such as artificial intelligence.

Cryptoassets: MLR-registered cryptoasset businesses are required to consult the FCG and adhere to its directives. Specific guidance on complying with the ‘Travel Rule’ is also included.

Consumer Duty: Firms are advised to ensure alignment of their systems with Consumer Duty obligations, with proposed measures to combat fraud and enhance customer experiences.

Recommended Action:

As the FCA conducts consultations on updates to the guide, it’s crucial for firms to actively participate by providing feedback. Additionally, they should assess how these proposed updates impact their financial crime systems and controls, determining if additional improvements are necessary. Key areas for review include:

Review the findings from the FCA’s 2023 assessment of sanctions systems and controls in financial services firms, identifying areas for improvement and examples of good practice.
Enhance transaction monitoring arrangements, incorporating innovative methods like Artificial Intelligence, and validate the accuracy and completeness of data input.
Evaluate gaps in current and proposed guidance, particularly for cryptoasset businesses now under the FCA’s supervision, focusing on risk assessment, fraud prevention, and blockchain analysis enhancements.
Assess the alignment of financial crime systems and controls with the Consumer Duty obligations introduced in July 2023.

Next Steps:

Given the rapidly evolving landscape and emerging threats in financial crime, firms are encouraged to act promptly, as the deadline for comments or questions on the consultation paper to the FCA is June 27, 2024. Subsequently, the FCA will issue a policy statement containing feedback and finalised FCG amendments.

How We Can Assist:

Our seasoned experts possess extensive industry experience in financial crime compliance and routinely assist firms in reviewing and implementing enhancements to their financial crime frameworks. Should you wish to explore these topics or discuss other financial crime-related matters, please feel free to contact us.