In a 19-page thematic review published today, the City watchdog cited both good and poor examples of risk management in a sample group of 22 firms.
It found that the industry should have “done more in ensuring they had suitable systems and controls in place” given recent regulatory communications on financial crime.
The thematic review acknowledged that most firms had “well developed” systems in place to deal with anti-money laundering, bribery and corruption risks, but had discovered that some firms could not demonstrate the “effectiveness of senior management oversight and challenge”.
Furthermore, some firms had “inconsistent or absent controls to assess, classify and record risks posed by new customers”, with gaps in due diligence on particularly ‘high-risk’ customers.
Risk assessments were not necessarily acted on, the review found, while most firms failed to demonstrate “adequate” systems and controls for assessing bribery and corruption risks posed by relationships with agents or introducers.
Although most firms had specific guidelines on what gifts or entertainment they could accept, these guidelines were loosely defined and open to interpretation.
Most firms also provided staff training on anti-money laundering, bribery and corruption, but more needed to be done to ensure training had a “strong practical dimension”.
The FCA said it expected all firms to consider the review and improve their systems accordingly.
A spokeswoman for the FCA said that it had spoken to some firms about actions they needed to take and would be monitoring them, though it had not referred any firms for enforcement.
Scott Gallacher, director of Leicester-based Rowley Turton, said: “IFAs are not the best choice for money laundering. We comprehensively verify the identities of clients, know where money comes from and we tend to get referrals from existing clients, so platforms and asset managers who deal with us know that we have conducted due diligence. The likes of Hargreaves Lansdown are more exposed to these risks if clients are going direct, because they do not have the buffer of financial advice.”