The Financial Conduct Authority is consulting on banks’ good and bad practices, following its thematic review which found that most banks had inadequate systems and controls in place regarding financial crime.
The watchdog’s thematic review, Banks’ control of financial crime risks in trade finance, found that banks generally had effective controls to ensure they were not dealing with sanctioned individuals or entities but most banks had inadequate systems and controls over dual-use goods and their anti-money laundering policies and procedures were often weak.
These were the findings of the FCA’s visits to 17 commercial banks to assess the systems and controls in place to contain the risks of money laundering, terrorist financing and sanctions breaches. This is published in tandem with a guidance consultation, where the FCA is calling for examples of good and bad practices.
Regarding governance, the bank said that an example of good practice is using relevant industry publications to raise awareness of emerging risks, whereas bad practice would be failing to roll out trade specific financial crime training to all relevant staff engaged in trade finance activity, wherever located.
An example of good risk assessment is completing a documented financial crime risk assessment for trade finance business that gives appropriate weight to money laundering risk, as well as sanctions risk. The FCA said that an example of bad practice is failing to update risk assessments and keep them under regular review to take account of emerging risks in trade finance.
The FCA said the guidance will make clear its expectations of firms’ management of the financial crime risk associated with trade finance, improve the level of compliance across the sector, level the playing field for firms and ultimately lead to a reduction in financial crime.
By ensuring that UK banks put in place effective financial crime systems and controls, the incidence of money laundering, terrorist financing and sanctions breaches in UK trade finance should be reduced, the FCA said.
According to the watchdog this will also reduce the possibility that London’s position as a major financial centre is severely affected by money laundering, terrorist financing and sanctions breaches, for example through a major terrorist attack facilitated by funding channelled through the UK financial system.
The FCA also said that making it harder for illicit funds to pass through the UK financial system will increase the cost to criminals of moving illicit funds and the chance that they are caught.
This will reduce the incentives for criminals to engage in such behaviour, and ultimately reduce the level of crime linked to moving illicit funds. Also, costs incurred by other agencies in preventing illegal behaviour may be able to be reduced.
The deadline for responses is 4 October 2013.