FCA update on reducing and preventing financial crime: what you need to know

The Financial Conduct Authority (FCA) has published an update on its three-year strategy to reduce and prevent financial crime. The update reflects on the FCA's progress since the strategy was published in 2022 and covers achievements as well as challenges. 

Reflections

The FCA has reflected and reported on its impact in the following three key areas.

• Fraud: increased efforts to prevent and prosecute fraud, especially online fraud, which surged during the pandemic. It has launched campaigns to raise awareness of common scams, such as investment and pension fraud, and to encourage consumers to check the FCA register and warning list before investing. It has also enhanced its capacity to prosecute fraudsters outside of its regulatory perimeter, where it can use criminal law. 
• Anti-money laundering (AML): intensified supervision and enforcement of AML rules, which require firms to prevent, detect and report money laundering and terrorist financing. The FCA has targeted the highest-risk sectors and firms, such as those dealing with cryptoassets, money service businesses and high-risk jurisdictions. It has also introduced a new requirement for cryptoasset businesses to submit data on their activities and customers in order to help the FCA monitor and assess the risks in this sector.
• Sanctions and evasion: strengthened cooperation with other authorities and agencies, such as HM Treasury, the National Crime Agency and the Office of Financial Sanctions Implementation, to aid in the enforcement of sanctions and to tackle evasion. The FCA has issued guidance and alerts to firms on how to comply with sanctions, and how to identify and report suspicious activity and introduced new initiatives such as providing synthetic data to help firms test and improve their systems and controls for detecting sanctions breaches and other financial crimes. 

Expectations

Firms should be aware of the FCA’s expectations in relation to their contribution to fight financial crime. These include: 

• encouraging firms to use tools like behavioural biometrics to spot unusual or suspicious customer activity and payments;
• maintaining awareness of new criminal techniques and typologies, including recent technological innovations flagged by the FCA as risk areas – such as criminal use of AI;
• regularly auditing policies and procedures to ensure they are still fit for purpose and adapting them where necessary; and 
• ensuring that senior management and staff are aware of their financial crime responsibilities and receive appropriate training and support.

In order to assist in meeting these expectations, the FCA proposes some questions for firms to ask themselves, such as the following.

• Does my firm know how criminals are likely to be using new technology to target our customers and business?
• How is my firm keeping updated with good practice?
• How is my firm measuring the outcomes we are achieving?

The update acknowledges the importance of enforcement to “maximise the deterrence impact” of its work. It highlights working with partner agencies as a means of strengthening the collective enforcement response, alongside investing in the FCA’s capacity to prosecute outside of its regulatory perimeter, where there are gaps in legislation or limits on its powers. To that end, since April 2022, the FCA has charged 15 individuals with fraud offences. The update acknowledges the key role the FCA has to play in the government's economic crime plan and importance of the reform of the AML supervisory regime. 

The FCA believes that legislative reform is needed to improve the standards and consistency of supervision of the 25 Professional Body Supervisors (PBSs) who are responsible for monitoring their members' compliance with money laundering regulations. It notes the inherent conflict risk due to many PBSs holding dual roles as advocates for their members and as their AML supervisors. The FCA therefore supports the option of a Single Professional Service Supervisor as a means of reforming the AML supervising regime to streamline and simplify the current supervisory structures. 

The FCA believes that financial crime is a serious threat to the integrity and reputation of the UK's financial system and to the trust and confidence of consumers and businesses. The FCA's update shows that it is committed to reducing and preventing financial crime, and that it expects firms to play their part in this endeavour. The FCA expects firms to be aware of the authority’s expectations and priorities, and take proactive steps to comply with developing compliance obligations; protecting themselves and their customers from financial crime risks.