FCA Financial Crime speech: practical takeaways and opinion
The FCA’s Executive Director for Markets, Sarah Pritchard, gave a speech on financial crime this week. The speech made perfect sense, although we’d heard a lot of what was said before. We’ve boiled it down to 2 practical takeaways and 2 opinion pieces:
Practical takeaways
Sanctions screening. Ms Pritchard made it clear that the FCA expects firms “to make sure that their solution is tailored and suitable for the customer and business profile.” Therefore firms need to be able to confidently explain why their solution is right for them and what they have done to test its efficacy. Indeed we have just completed a piece of work for a client that squarely answers those questions.
Ms Pritchard references the cost of living crisis and logically concludes that fraudulent behaviour will be on the rise as a result. She asked the question “what is your firm doing to calibrate your financial crime controls to changing risks in the cost of living crisis?” This is a fair question. She goes on to ask what firms have done “to raise awareness of APP fraud, pension scams or ghost broking?” Depending on your business model this may be a question supervision teams start asking you, so you should be prepared. And in our view, for some firms this may well be a trigger to review and update your business wide risk assessment (BWRA).
Opinion
The question on what firms have done regarding calibration of financial crime controls in light of the cost of living crisis is fair enough. However this falls into the proactive, front foot bucket and many firms we speak to have incredibly stretched second line functions. Many MLROs have inherited financial crime frameworks that need updating. This combined with daily BAU questions/issues make it difficult to get on the front foot and find the bandwidth to address these proactive measures effectively. We’re not saying it can’t be done – we’re just saying that the reality is much more challenging than came across in the speech.
A significant thrust of Ms Pritchard’s speech was that everyone needs to work together to effectively fight the common goal of limiting the threat from criminals – she talks of a “whole system response”. She lists participants such as the Home Office, Treasury, NECC, NCA, international regulators and industry. We agree. However the reality is that all of these contributors do not have the same goals or measures of success which ultimately leads to failure. For example the Home Office for many years was soft on dirty money (Russia and other kleptocracies) coming into the UK – some might say it was welcomed. The NCA has been crying out for years to get suitable funding to help it make a difference in the fight against organised crime – but this funding has not been forthcoming from the Treasury. Regulatory competition is firmly on the agenda of the FCA and international regulators. We are seeing this play out in relation to where FinTechs base themselves and a desire to be the destination of choice. So yes, we agree completely that we need a “whole system response” – but to date “the whole system” has not let this happen.