British regulators report they have found that small firms aren’t properly managing the risks of financial crime.
The UKs Financial Conduct Authority (FCA) says it has found that many small banks and commercial insurance intermediaries fail to effectively manage financial crime risk.
The FCA reviewed 10 insurance firms and 21 banks and found “significant and widespread weaknesses in most banks’ anti-money laundering systems and controls, and in some banks’ sanctions controls.”
The FCA says that senior management engagement on these issues had improved, but that a third of banks had inadequate resources; their staffs “often had weak knowledge of money laundering risks”; and, some overseas banks struggled to reconcile their policies with higher requirements in the UK.
As a result of the review, the FCA says that several banks have made personnel changes; four firms have temporarily restricted their business while they correct weaknesses in their controls; and, the FCA has instructed three banks to undertake an independent review of their systems and controls. Additionally, two firms have been referred to its enforcement division for investigation.
The review also found that “most intermediaries’ controls failed to manage bribery and corruption risk effectively”. While some firms’ policies have improved, the FCA says that “bribery and corruption risk assessments were often too narrow and many firms failed to take a rounded view of the risks associated with individual relationships.” Additionally, it says that some of the files it reviewed were inadequate and senior management oversight was often weak.
Along with publishing the results of these reviews the FCA also proposed amendments to its regulatory guidance on the necessary controls to prevent financial crime, which the FCA says aims “to clarify our expectations in some areas where significant weaknesses persist.” Those proposals are out for comment until Feb. 6, 2015.
“Firms must take their responsibility to reduce the risk of financial crime seriously. Significant improvements are still required in this area,” said Tracey McDermott, director of enforcement and financial crime at the FCA.
“To do that successfully requires firms to use their judgment and common sense. That is not about box ticking or wholesale de-risking. It is about firms getting the basics right – understanding their customers, the risks they pose and managing those risks proportionately and sensibly,” she added.