The FCA Thematic Review of anti-money laundering and anti-bribery and corruption systems and controls in asset management companies was published recently. The FCA assessed 22 firms including wealth and asset management firms, fund administrators, and platform firms.
The FCA Thematic Review focused on:
- AML systems and controls (including account opening, transaction monitoring, and suspicious activity reporting to mitigate money laundering risks)
- ABC systems and controls (including the use of business introducers, third party payments and gifts/entertainment arrangements).
Summary of the findings in this FCA Thematic Review:
- Most firms had relatively well-developed arrangements for the ownership of money laundering and bribery and corruption risks. However, some could not provide evidence to demonstrate the effectiveness of senior management oversight and challenge.
- AML and ABC issues were dealt with primarily as a compliance matter rather than as part of proactive risk management. Failure to properly identify and assess risk often led to weaknesses in customer due diligence and on-going monitoring of business relationships.
- Most firms had a comprehensive suite of AML policies and procedures approved by senior management.
- Some firms had inconsistent or absent controls to assess, classify and record risks posed by new customers, which meant that enhanced due diligence and enhanced on-going monitoring was sometimes not carried out for high-risk customers.
- There were weaknesses in how most firms acted on the outcomes of risk assessments. Identified risks were often non-measurable and not actively monitored. This impacted the extent to which appropriate controls were defined to mitigate those risks.
- Some firms considered that the longstanding nature of some business relationships alone was a satisfactory substitute for keeping customer due diligence information up to date.
- Some firms failed to take adequate steps to establish, verify and document the legitimacy of the source of funds and source of wealth to be used in business relationships for high risk customers.
- Most firms failed to demonstrate adequate systems and controls for assessing bribery and corruption risks in relation to dealing with and monitoring third party relationships, such as relationships with agents or introducers.
- Most firms had well-established AML and ABC training initiatives in place setting out relevant AML and ABC rules and regulations. However, the findings call into question the effectiveness of this training. Firms should develop more ‘tailored’ training material focusing on risks specific to their business. Most firms had appropriate arrangements to govern training, including monitoring staff completion activity and incentivizing staff to adhere to training requirements through performance management protocols.
FCA found that AML controls varied across the sector; there were areas where some firms understood and met their obligations, and others where improvement was needed. There is still work for most firms to do to ensure bribery and corruption risks are appropriately mitigated.
Given the strong regulatory focus and previous publications on AML and ABC the FCA expected firms to have taken more action to ensure their controls reduced the risk of money laundering and bribery and corruption.
The FCA considers the findings of particular concern where the firms were part of major financial groups, which should have been aware of FCA expectations. In some cases, the firms visited were from groups that had been subject to previous regulatory attention but FCA still found significant weaknesses.
For those visitors interested in the complete Thematic Review by the FCA please follow this link.
The Thematic Review contains (Section 3 of the document) 2 pages of examples of good and poor practices, which provides good reading for all involved in the AML and ABC procedures.