The National Crime Agency’s use of the Unexplained Wealth Order regime has also created high profile headlines exposing lavish spending habits of individuals whose wealth is unexplained. It is this political focus, along with the approach of Mark Steward, the FCA’s Director of Enforcement and Market Oversight, to encourage the FCA to use all of the criminal powers which Parliament has prescribed, which has led to the FCA over the last year opening criminal as well as civil investigations into banks for suspected breaches of the Money Laundering Regulations.

Prior to Mark Steward’s leadership, we had seen the FCA approach enforcement investigations concerning banks’ compliance with the Money Laundering Regulations through investigations for suspected breaches of Principle 3 of the FCA’s Principles for Businesses. Here the FCA had determined that firms had failed to take reasonable care to organise and control their affairs with adequate risk management systems. Now, however, the FCA is taking a much more aggressive approach, and for the first time commencing investigations for suspected criminal breaches of the Money Laundering Regulations.

The FCA’s approach of bringing criminal investigations has arisen in part from the extensive work it has been doing with authorised firms in recent years. This started with the Systematic Anti-Money Laundering Programme reviews, where the FCA spent time with 14 major retail and investment banks operating in the UK, through which it developed its practical understanding of how banks were implementing the risk-based approach to anti-money laundering as set out in the Money Laundering Regulations. Using its knowledge gained through this process, the FCA is now conducting a large number of reviews of smaller banks operating in the UK, many of which are headquartered overseas.

Through its reviews, the FCA is focusing on whether firms operating in the UK are meeting the UK standards. In particular, the FCA is keen to explore whether there is an understanding of money laundering risk across the business, from members of the board to junior members of staff. The FCA is also exploring whether Money Laundering Reporting Officers (MLROs) are escalating issues of concern to the boards of their firms, and accurately recording all of their concerns in their reports to boards. In probing MLROs, the FCA is seeking to understand whether MLROs have considered why the number of suspicious activity reports filed may have been low, and whether this might indicate that training is defective, with staff not understanding how to recognise the risks of money laundering. In examining the onboarding process, the FCA is concerned to understand that the processes and checks set out in a firm’s policies and procedures are in fact being implemented, whether customer records contain relevant information and whether enhanced due diligence is properly being conducted on customers deemed to pose a higher risk of money laundering. The FCA is also keen to see that firms are conducting active ongoing monitoring by checking that account activity is consistent with the firm’s understanding of the nature of a client’s business. Following an FCA’s visit, it will normally send a letter setting out its findings and it is not uncommon that this letter can set out issues of concern which were not highlighted by the FCA during its visit.

Through its visits, the FCA has gathered a huge amount of data regarding firms’ approaches to anti-money laundering, and also regarding individual customers who may appear to be involved in money laundering. Where it considers that firms have failed to comply with its standards, the FCA has shown that it will take action.

The approach of bringing criminal investigations into firms where there are concerns that a firm has failed to comply with the FCA’s expectations around how firms have implemented the risk-based approach to anti-money laundering systems has raised some concerns. In particular, if there are concerns over the adequacy of a firm’s interpretation of the risk-based approach, it would seem surprising that an investigation over the quality of a firm’s systems and controls can give rise to a criminal investigation, where a firm had implemented policies and procedures under the Money Laundering Regulations and where these policies had been subject to regular audit reviews.

As an alternative to the opening of criminal and civil investigations, the FCA may require a firm to appoint a skilled person where it has concerns. Firms should bear in mind that, should the report of the skilled person raise compliance issues, an enforcement investigation may follow, and the FCA frequently quotes from the findings of skilled persons in their final notices. As a result, firms should not consider that a skilled person is solely performing the role of an adviser to the firm or be lulled into a false sense of security in their dealings with the skilled person. Care always needs to be taken in dealing with a skilled person, in the same way that care would be taken in responding to questions raised by the FCA itself.

In conclusion

Whilst the approach the FCA has taken in commencing hybrid criminal and civil investigations has undoubtedly raised the profile of the FCA’s work in this area, if there is a proper basis for these investigations, we are likely to start to see evidence of this during 2019, either with firms and members of senior management being charged with criminal offences, or with further enforcement outcomes.

This article was first published in Bryan Cave Leighton Paisner’s Emerging Themes in Financial Regulation 2019: New Perspectives publication

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