The Financial Conduct Authority (FCA), which operates independently of the government in charge of the UK's treasury, regulates financial companies and the current market. Financial Conduct Authority aims to ensure that markets operate competitively and fairly in the UK, benefit customers, staff, and shareholders, and maintain trust in the UK as a major global financial center. Money Laundering Regulations in the legislation apply to financial institutions while aiming to maintain this trust.
On January 10, 2020, the changes made by the United Kingdom Government's Money Laundering FCA Regulations came into force. The UK's AML regime has been updated to include the Financial Action Task Force (FATF) in general and the 5th Money Laundering Directive of the EU.
High-Risk Factors Determined by the Financial Conduct Authority
In some high-risk situations covered by the Financial Conduct Authority (FCA), financial institutions need to take measures in their businesses. To explain these measures, businesses should evaluate the due diligence needs. They should perform this assessment not only in high-risk transactions but also in other transactions. Besides, some high-risk transactions should add new additional high-risk factors, collect additional information about customers or partners, and follow up on suspicious transactions when making this situation determinations. Some high-risk factors identified by the FCA are as follows:
- If the customer buys the property, it is a third country citizen who wants a right of residence to invest in legal entities and transfers capital.
- If a transaction occurs between the parties in third countries that are considered as high risk by FCA
- If the client carries out non-face-to-face business relationships or certain non-trustworthy transactions as specified in the regulations.
- If the customer takes any action with precious metal, oil, tobacco products, weapons, wildlife smuggling products, cultural artifacts, objects of historical or religious significance, and rare scientific value objects.
High-Risk Countries on The Financial Conduct Authority's AML list
The Financial Conduct Authority had published a list of 95 countries considered to have high money laundering risks. Sanctions, money laundering, terrorist financing, bribery and corruption, human, drug, and arms trafficking crimes may be higher in these risky countries. For this reason, financial institutions operating in the UK need to carry out the necessary AML checks when collaborating with companies or customers in these countries. FCA requires these procedures to protect the UK's financial security. The only factor that FCA considers is not being a high-risk country. The companies' structures that financial companies do business with, political connections, funding source, the reputation of the customer or beneficiary, source of wealth, and sector risk are noteworthy issues.
The list of countries identified as high risk by FCA is periodically reviewed. These risky countries are:
China, Belarus, Ecuador, Afghanistan, Algeria,Laos, ColombiaArgentina, Azerbaijan,Ukraine, Bahrain, Bangladesh,Thailand, Dominican Republic, Bolivia, Korea (North), Bosnia and Herzegovina, Brazil, Bulgaria, Burundi,Sierra Leone, Cambodia, Myanmar, Cayman Islands,Panama, , Republic of the Congo, Democratic Republic of Congo, Cuba, Djibouti, Egypt,,South Africa, Eritrea,, Fiji, Gabon, Zimbabwe, Guinea, Suriname, Guinea-Bissau, Venezuela, Haiti, Honduras, India, Iran, Iraq, Zambia,Israel, Turkey ,Jamaica, Kazakhstan, Kenya,Seychelles, Kosovo, Kyrgyzstan,, Latvia, Lebanon, Liberia, Libya, Malaysia, Mali, Mexico, Montenegro , Angola, Morocco, Nauru, Indonesia, Nepal, Nicaragua, Niger, Nigeria, Palestine, Romania, Russia, Saudi Arabia, Serbia, Pakistan,Somalia,, Sri Lanka, Sudan (North), Ivory Coast (Cote d'Ivoire), Sudan (South), Swaziland, Syria,Kuwait, Tajikistan, Tanzania, Benin, Tunisia, Turkmenistan, UAE,Uzbekistan, Vatican City,Guatemala, Ethiopia, Yemen, Equatorial Guinea.
Customer Due Diligence (CDD) Requirement
Companies at AML risk should apply KYC, CDD, or EDD procedures for that person when dealing with a customer or legal entity through local and global regulations. CDD covers the process of collecting information about the customer so that financial institutions can recognize their customers and identify the risks they will be exposed to, and take the necessary measures against it. Financial institutions also have CDD procedures to ensure safe customers, prevent money laundering activities, and comply with the necessary FCA regulations.
FCA Regulations also have CDD procedures that financial institutions are responsible for. Companies in the UK are required to update records regarding the interests of corporate customers. Firms need to know their corporate customers' control structure and record their difficulties in identifying the ultimate beneficial ownership. Under FCA's new regulation on electronic money, UK firms can leave Customer Due Diligence (CDD) measures only under certain circumstances. These situations are as follows: The maximum amount that can be stored electronically is 150 €. This value was previously 250 €. There is a € 150 money limit made electronically in the UK and can only be used in the UK. With this limited money, it can only be used to purchase goods or services; that is, anonymous electronic money cannot finance the relevant payment instrument. If these conditions are met, companies may not take Customer Due Diligence measures.
A Risk-Based Approach for Anti-Money Laundering
FCA expects all companies that are subject to the Money Laundering Regulations to fulfill complementary regulatory obligations in addition to policies and procedures to minimize the risk of money laundering. With regular audits, how companies apply these policies and procedures is monitored and managed. Firms should also have a senior manager to ensure that money laundering regulators are implemented. Also, a Money Laundering Reporting Officer (MLRO) focusing on AML activities should be appointed to the company. MLRO monitors the company's compliance with AML obligations.
Firms also have a risk assessment at the heart of meeting AML obligations. As risks change over time, your risk assessment will need to be kept up to date. Companies that apply a risk-based approach to Anti-Money Laundering (AML) will have a major impact on ML / TF risks that may arise in their businesses. FCA does not elaborate on how firms assess risk and risk-based approaches. Firms also change their risk assessments depending on the product they sell, their size, and the nature of the risks they have. With appropriate AML software, companies can perform the required risk assessments.
Financial Conduct Authority's Supervisory Program
FCA regulations have effective, proportionate, and risk-based controls to ensure that they are applied to companies. Companies regulated by FCA in the UK are also subject to certain global regulations, and FCA also monitors companies' compliance with these regulations. These firms are called FCA-regulated firms. The quality of AML systems and controls of the companies are also checked. Financial crime specialist auditors carry out extensive work on both AML and anti-bribery and anti-corruption issues because they are among the weakest crime factors for firms. If these audits or regulators were not available, financial criminals could easily carry out their activities.
FCA has two proactive AML inspection programs. One of these programs is the Systematic Anti-Money Laundering Programme (SAMLP). This program includes 14 major retail and investment banks operating in the UK, higher-risk business models, and strategic operations abroad. The second is the regular AML inspections program for high financial crime risks, often found in smaller banks.