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Key Considerations for the FCA’s Consultation Paper 24/9: Financial Crime Guide Updates

On 25 April 2024, the Financial Conduct Authority (“FCA”) released their Consultation Paper (“CP”) regarding the proposed enhancements to their Financial Crime Guide (“the Guide”).¹ Firms regulated by the FCA under the Money Laundering Regulations (“MLRs”) 2017 (as amended), and other interested parties, should contribute their insights and views by 27 June 2024. Through the period, firms should also consider proposed changes and assess their financial crime systems and controls.

The suggested updates to the Guide aim to integrate recent FCA findings from thematic reviews as well as supervisory and enforcement actions, and to account for emergent financial crime priorities. These include sanction breaches and facilitation of evasion, abuse of crypto assets, and proliferation financing, among others. Proposals also look to ensure firms consider the introduced Consumer Duty obligations when reviewing their financial crime systems and controls, and the CP hints at future guidance updates in relation to fraud.

Similar to the FCA’s midpoint update on their three-year strategy, the proposed updates also focus on utilising technology and data, and especially on the proactive understanding and sufficient oversight of certain technologies, to reduce and prevent financial crime.

Key Points Under Consideration by the FCA

To enhance the Guide’s usefulness, the FCA is consulting on the changes described below:²

Sanctions: Introducing potentially substantive amendments to Chapter 7, including elevating senior management’s responsibility for sanctions risk management; implementing procedures to identify and escalate new sanctions risk events; exploring alternative detection methods for potential sanctions evasion through data analytics, and ensuring sufficient reporting of sanction rule breaches to the FCA and the OFSI.
Proliferation Financing (“PF”): Ensuring adequate coverage of PF considerations across the Guide, to highlight the MLR requirement to carry out PF risk assessments.
Transaction Monitoring: Introducing more robust guidance on selection, maintenance and ongoing evaluation of automated transaction monitoring systems that support responsible innovation. The FCA, however, maintains their existing position: that the use of automated monitoring should be proportionate to the size and nature of the business, and is not necessary where manual processes are sufficient.
Crypto Assets: Introducing references to crypto assets within the Guide, specifically around enhanced due diligence in higher-risk scenarios and compliance expectations regarding the Travel Rule.
Consumer Duty: Incorporating references to the Consumer Duty within the Guide — for example, guidance around enhancing the customer fraud journey.

What Should Firms Do Now?

Whilst the FCA is currently consulting on the updates to the Guide, firms should consider how the proposed updates impact their financial crime system and controls and whether further enhancements are needed. This review should cover:

Reassessing your firm’s sanctions framework based on the proposed extended guidance, including enhancements to governance, MI, risk assessment, screening, escalations, new sanction detection methods and reporting of sanctions breaches. If they have not already done so, firms should revisit the findings from the FCA’s 2023 in-depth assessment of the sanctions systems and controls of financial services firms.³ The review identified examples of good practice as well as a number of areas for improvement.
Ensuring the effectiveness of your risk assessment and its coverage of proliferation financing risks the firm is exposed to, as required under regulation 18A under the MLRs.
Enhancing, tailoring and ensuring sufficient understanding of the transaction monitoring arrangements. In addition, where required, firms should be leveraging new innovative approaches such as the use of Artificial Intelligence, which should also include checking the accuracy and completeness of data fed into automated monitoring systems.
Assessing gaps in the current and proposed guidance, especially for crypto asset businesses, which were brought into the FCA’s supervisory perimeter in 2020. The Guide includes specific guidance in relation to risk assessment, handling high-risk situations (including fraud), and enhancements of blockchain analysis with off-chain Know Your Customer and transaction monitoring data.
Evaluating the compatibility of your financial crime systems and controls against the Consumer Duty obligations introduced on 31 July 2023, particularly around key topics such as customer exits and treatment of PEPs.

How We Can Help

Our experts have deep industry experience in financial crime compliance, governance, and regulatory risk management, data and analytics as well as organisational change and transformation. We regularly support firms with review and implementation of enhancements to their anti-financial crime frameworks. For more information see: fticonsulting.com/uk/industries/financial-services

If you would like to discuss any of these topics, or other regulatory and risk topics, then please get in touch.

Footnotes:

1: CP24/9: Financial Crime Guide Updates (fca.org.uk)

2: Aside from the material changes, the FCA is also proposing to refresh case studies so they reflect recent enforcement actions and updates to expired links or references.

3: See an explanation of firms’ response to increased sanctions due to Russia’s invasion of Ukraine at this FCA publication dated 6 September 2023: