Firms must remain informed about the most recent regulations and best practices to safeguard their business from financial crimes in this ever-shifting setting. In this effort, the FCA Financial Crime Guide is advantageous.
The FCA Financial Crime Guide is a comprehensive manual for firms that guides them in identifying and preventing financial crime, with an increased focus on adherence to stringent money laundering regulations.
In our blog, let us explore the critical areas of the FCA Financial Crime Guide that organisations must prioritise to improve their financial crime prevention strategies.
The FCA's Key Changes and Their Impacts
- Enhanced Focus on Financial Sanctions
- Tackling Proliferation Financing
- Revolutionising Transaction Monitoring
- Navigating the Cryptoasset Landscape
- Consumer Duty and Financial Crime Prevention
- Preparing for Consequential Changes
Enhanced Focus on Financial Sanctions
FCA employed a new analytics-based approach to assess the sanctions compliance of over 170 organisations from various sectors. The FCA revised the Financial Crime Guide’s Chapter 7 on Financial Sanctions based on the key findings of the September 2023 report and other supervisory reports, focusing on high-level systems and controls for efficient compliance. They are:
- Establish reporting procedures for businesses subject to financial sanctions.
- Create governance procedures to monitor sanctioning systems and controls.
- Emphasise the significance of management information in the efficient operation of sanctions system controls.
- Include details regarding firms’ vulnerability to possible sanctions regimes and plans for future sanctions measures.
- Provide instances of good and poor screening tools for identifying potential sanctions concerns.
- Offer guidance on the relationship between Customer Due diligence and Know Your Customer procedures for AML purposes and mitigating sanctions risks.
- New instructions for firms to identify, assess, and report suspected sanctions breaches.
Tackling Proliferation Financing
Since 2022, amendments to the MLRs have prompted firms to evaluate the risks of proliferation financing. Firms must understand their financial crime risks before implementing effective systems and controls. FCA’s proposal to Financial Crime Guide includes
- Adding references to the PF Risk assessment in Chapter 7.2 ‘Risk Assessment’
- Providing links to valuable resources for firms to consider during their PF risk assessments.
Revolutionising Transaction Monitoring
Many organisations rely on transaction monitoring, however inadequate software deployment and industry innovation have raised concerns about automated monitoring systems. To address this, the FCA proposes offering further guidelines on how to implement and manage automated monitoring systems, which include:
- New self-assessment questions and examples of good and poor practice.
- Expectations for firms to ensure triggers in automated systems are set appropriately for money laundering, terrorist financing, and proliferation financing risks.
- Proposed controls for switching from one automated monitoring system to another.
- Supervisory expectations for firms to use transaction alerts to inform individual customer risks and monitor overall control framework efficacy.
- Good and poor practice on evaluating the effectiveness of the monitoring system.
- Importance of oversight, resource, expertise for effective screening, and the need for self-evaluation questions.
Navigating the Cryptoasset Landscape
The FCA has been conducting extensive compliance assessments for crypto asset businesses since January 2020, ensuring businesses adhere to the Financial Services and Markets Act’s financial crime standards. The FCA further recommends:
- The firms registered under the MLRs comply with the Guide to create financial crime systems and controls that align with their obligations under the MLRs and UK Financial Sanctions regime.
- Beginning 1st September 2023, cryptoasset businesses in the UK must collect, verify, and disclose information regarding cryptoasset transfers, known as the ‘Travel Rule’.
- Proposes to insert a reference to the travel rule in the existing section on customer payments.
- New sections on risk assessment, handling high-risk circumstances, and fraud are suggested.
- Links to valuable guidance materials for cryptoasset businesses are offered, including information on Travel Rule compliance.
Consumer Duty and Financial Crime Prevention
- The FCA considers including text reminding businesses to consider the Consumer Duty alongside their financial crime requirements.
- This is intended to ensure that businesses understand their duties in providing positive outcomes for retail customers while also complying with financial crime legislation.
Preparing for Consequential Changes
To ensure its relevance, many revisions to the FCA’s Financial Crime Guide have been proposed. This includes:
- Refreshed links and more recent instances of financial crime outcomes.
- Removed references to European Union rules and supervisory authorities.
- Addition of links for firms to consult on systems and controls.
- Updated good and poor practice examples on data security.
- Minor drafting changes identified.
Importance of Staying Updated with FCA Financial Crime Guide Changes
Firms need to keep up with the FCA’S Financial Crime Guide for various reasons:
- It assists in the detection, assessment, and mitigation of financial crime risk.
- Essential for avoiding regulatory penalties such as fines and loss of licence.
- It helps create a safer financial environment for customers.
- Maintains efficient procedures and offsets operational risk, leading to business continuity.
- Increases investor trust by proving compliance.
- Early adoption of new rules gives the firm a competitive advantage by establishing it as a leader in financial crime prevention.
In a nutshell, remaining in line with the FCA’s Financial Crime Guide is a strategic need for financial institutions seeking to survive in a complicated regulatory environment.
Power Up Your Compliance with Macro Global
Macro Global provides exceptional fintech & regtech solutions that are specifically engineered to provide financial institutions with the resources required to effectively navigate the intricate regulatory environment, adhering to the various regulatory guidelines. Firms can effectively manage their financial crime risks and meet regulatory obligations by utilising these solutions, which are built on a foundation of robust compliance features. The products are as follows:
FSCS SCV Suite: Regulatory Reporting Solution
- FCA-recognised independent software vendor, capable of making RegData submissions.
- Provide comprehensive solutions for banks and financial institutions.
- Comply with ISO standards and Strong Customer Authentication regulations for data security and regulatory compliance.
- Meets the latest regulatory requirements for accurate and secure reporting
- Offer third-party integrations for detecting fraudulent and duplicate financial data.
- Use AI algorithms for detecting data inconsistency, maintaining SCV report accuracy and integrity.
Tavas: Comprehensive Open Banking Suite
- Adheres to Open Banking conformance test suite standards and UK Open Banking Specification.
- Exempts financial institutions from contingency mechanisms for dedicated API interfaces.
- Offers API health check, regulatory reporting, user controller, and secure platform hosted in Microsoft Azure Cloud.
- Provides seamless change management with constant monitoring and implementation of PSD2 regulatory environment changes.
- Offers customisable FAPI Compliance, financial grade APIs, Open APIs, cutting-edge technology for AIS, PIS, and COF services.
- Ensures compliance with Regulatory Technical Standards, including Strong Customer Authentication.
- Includes seamless TPP onboarding, MIS dashboard, and multi-factor authentication.
NetRemit: White-Label SaaS Cross-Border Payment Suite
- Compliance with ISO, OWASP, and regulatory requirements.
- As an integration partner, provides robust Compliance Management to meet evolving AML/KYC and CFT regulations.
- Offers Strong Customer Authentication to align with PSD2 requirements.
- Implements proactive safeguards to minimise risks and ensure compliance.
- Offers 3D Secure authentication and robust 256-bit encryption for data security and unauthorised access.
- Operates confidently while meeting evolving standards.
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