AML & ABC – the 2014 requirements Simon Morris & Omar Qureshi May 2014
Looking at … 1. The FCA policy 2. When the FCA takes action 3. What good can look like 4. The Serious Fraud Office: role & focus 5. Recent developments and trends 6. The SFO’s approach to ABC controls 2
1. The FCA policy We will continue to assess anti-money laundering (AML) processes and controls in major banks and those staff responsible for them. We will extend this during 2014/15 to some smaller firms that might present high levels of money laundering risk, as well as carrying out focused thematic work … We will have the following priorities … effectiveness of systems and controls within the regulated community … FCA Business Plan 2014/15 3
Looking broadly Our top financial crime concerns at the moment • Money laundering risk • Corruption risk • Investment fraud against consumers • Insider dealing Our focus is on • Firms’ systems and controls • Firms’ operating culture • Behaviour of people whose job is business acquisition • Those who run the business Bob Ferguson FSA speech 13 September 2012 4
What’s the requirement? PRIN 3 Management and control A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems SYSC 6.3.1 [CMS version] A firm must ensure its compliance policies and procedures include systems and controls that: (1) enable it to identify, assess, monitor and manage financial crime risk; and (2) are comprehensive and proportionate to the nature, scale and complexity of its activities. 5
The breadth of the regulatory concern Focus – we focus our resources on firms that are particularly 1. exposed to financial crime risk. Priority – we prioritise protecting consumers rather than regulated 2. firms. 3. Target – we seek out firms that are being used for financial crime, particularly money laundering and bribery/corruption. 4. Alert – for current and emerging financial crime risks, and ensuring firms are aware of the implications and how to mitigate. 5. Approach – intensive and intrusive, emphasising early intervention and credible deterrence where serious risks are identified ... FCA: Anti-money laundering annual report 2012/13 (July 2013) 6
The FCA’s supervisory approach 1. Specialist financial crime supervision team supports supervisors 2. Receives intelligence from a range of sources 3. Deals with c100 cases of money laundering risk annually 4. Conducts Systematic Anti-Money Laundering Programme assessments of 14 major banks 5. Carries out thematic reviews on high risk issues, assessing around 20 firms each time 6. The specialist team’s work assesses financial crime systems and controls in around 150 firms a year 7
With more to come … ... we are exploring the extent to which our approach, including our SAMLP reviews, can be refined to allow us to use our existing resources to examine a larger sample of firms and/or review firms more frequently , particularly smaller firms that might present high levels of money laundering risk ... We will also continue our thematic work , with reviews of e-money/new payment methods planned, along with some follow up work on anti-money laundering controls over high risk/ PEP customers in smaller banks. FCA: Anti-money laundering annual report 2012/13 (July 2013) 8
2. When does the FCA take action? Willis Habib Turkish EFG Guaranty JLT Standard 7.2011 5.2012 7.2012 3.2013 8.2013 12.2013 1.2014 ABC AML AML AML AML ABC AML No Poor Poor Poor Poor Not assess rationale Procedure procedure procedure procedure risk Poor DD Poor EDD Poor CDD Poor EDD Poor CDD Poor EDD Not review Not review Not get Poor DD S&C approval No training No training Not Poor Poor Not follow Poor monitor records monitoring policies monitoring 9
Or in words … Coutts failed to ... 1. assess the risks 2. gather sufficient information about its prospective customers to establish their sources of wealth and income; 3. establish the source of the funds; 4. constantly apply monitoring; 5. keep the information up-to-date ; and 6. scrutinise transactions appropriately. Coutts (Final Notice March 2012) 10
And liability for the MLRO? He ... breached APER 7 by failing to take reasonable steps to ensure that firm had adequate processes and procedures for: 1. assessing the money laundering and financial crime risks; 2. ensuring his function was adequately resourced; 3. carrying out checks to screen customers; 4. carrying out customer due diligence procedures; 5. adequately carrying out on-going monitoring; and 6. adequately training. Sudipto Chattopadhyay (Final Notice May 2010) 11
And again ... Mr Finger failed to: 1. identify the potentially suspicious nature of multiple payments effected by a client despite being presented with clear indicators; 2. undertake adequate assessment as to whether the activities could constitute any sort of suspicious activity; and 3. properly consider his responsibilities in relation to this activity and report it to the necessary authorities on a timely basis. Laurence Finger (Final Notice December 2010) 12
3. So what are the elements of good practice? A wide range of sources 1. JMLSG 2. Small Firm Financial Crime Review FSA May 2010 3. ABC in commercial insurance broking FSA May 2010 4. Good practice in banks’ defences against investment fraud FSA June 2012 5. AML & ABC for Asset Managers FCA October 2013 6. FCA’s Financial Crime: a guide for firms April 2014 7. BBA Anti-Bribery and Corruption Guidance May 2014 13
What can good look like? 1. Senior management leads a. Oversees b. Understands c. Ensures quick response d. Up to date e. Defines responsibilities f. Gets internal & external MI g. Sets the tone I. Remuneration II. Incentives III. Approves relationships 14
2. AML/ABC properly resourced a. Financial crime risks coordinated b. Information is shared c. Properly resourced d. Responsibility apportioned e. Issues escalated f. Business engaged with 3. Gap analysis performed a. Regular & informed b. Challenged & benchmarked c. Implemented & reviewed 15
4. Compliance & GIA a. Trained & effective 5. Policies & procedures a. Comprehensive b. Up to date c. Adequate d. Reviewed e. Accessible f. Monitored against 6. Training a. Tailored & tested against 16
7. Staff a. Vetted, repeatedly b. Agencies checked c. Changes noted 8. AML/ABC a. MLRO & resources adequate b. Clear risk-attuned procedures c. Trained & monitored d. Clear reasoned records of take on & thereafter 9. ABC (a) risk based procedures; (b) train; (c) DD; (d) monitor; (e) records 17
The SFO focus and approach to anti-bribery controls Omar Qureshi T: +44 (0) 207 367 2573 E: omar.qureshi@cms-cmck.com 18
4. The SFO − Mission statement: “ to investigate and, where appropriate, to prosecute cases of serious or complex fraud, bribery and corruption and to assist overseas jurisdictions with their investigations into serious or complex fraud and corruption ” (SFO Annual Report and Accounts 2012-13) − Acceptance criteria: • Cases which undermine UK commercial/financial PLC in general and the City of London in particular • Cases where the actual or potential loss involved is high • Cases where there is a very significant public interest element • Cases involving new species of fraud 19
The SFO’s operations − Seven operational divisions: • Two deal with fraud – e.g. − Fraud by false representation/ failing to disclose information/ abuse of position (Fraud Act 2006) • Dishonestly … intending to make a gain for himself or another or cause loss to another • Two deal with bribery and corruption – i.e. − Offer/promise/give or request/accept/agree to receive a advantage involving improper performance of a relevant function/activity − Offer/promise/pay an advantage to a foreign public official intending to influence and obtain/retain business or a business advantage − Corporate failing to prevent bribery by someone acting on its behalf (subject to “adequate procedures” defence) • One deals with proceeds of crime (i.e. money laundering/ restraint/ confiscation etc) • One deals with intelligence • One deals with strategic relations (including requests from foreign jurisdictions asking for investigative assistance) − Interacts with the NCA, police, overseas authorities and regulators 20
The SFO – intelligence gathering − Dedicated intelligence unit − “ We are greatly enhancing our intelligence capacity. If corporations do not self-report when they have discovered past misconduct, we may well find out anyway and call them in .” (David Green, director, SFO – 26 March 2013) − Gathers information from numerous sources including: • SARs (NCA’s FIU) • Other law enforcement agencies • FCA (and other regulators) • Overseas authorities • Whistleblowers • Press • Self-reports 21
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