The review addressed the adequacy of anti-money laundering (AML) and anti-bribery and corruption (ABC) systems and controls. It did not consider compliance with sanctions regimes or fraud risk management.
Asset management firms will need to act to meet the FCA’s expectations as regulatory scrutiny is likely to continue in the sector.
Failing to meet expectations
Overall, the FCA expected the sector’s firms to have done more to ensure their AML and ABC systems and controls are suitable. While AML control practices varied, most firms appear to need to improve their ABC controls.
Although some good practice was observed, the FCA highlighted the following concerns around the management and oversight of risks:
- Insufficient evidence of effective senior management oversight and challenge
- Limited use of risk assessment output to inform the design and implementation of appropriate risk mitigating controls
- Weak customer risk assessment leading to insufficient customer due diligence and ongoing monitoring (including enhanced measures for high-risk customers)
- Inadequate steps to establish, verify and document the legitimacy of the source of wealth and funds to be used in high-risk relationships
- Customer due diligence not always kept-up-to date where relationships were longstanding
- Generally inadequate assessment and monitoring of bribery and corruption risks related to third parties such as agents and introducers
- AML and ABC training material not sufficiently focussed on the risks relevant to particular businesses
Continuing regulatory focus
All firms for whom the report is relevant should consider their AML and ABC compliance frameworks following the FCA’s examples of good and bad practice.
Given the relative maturities of the UK AML and ABC regimes, it’s unsurprising the FCA believes asset management firms have more to do regarding ABC controls than AML controls.
You should expect continuing regulatory focus on the asset management sector and management of financial crime risks because:
- The Financial Services Authority described this Thematic Review as ‘overdue’ when they first announced it
- During 2013, the FCA built a specialist asset management supervision function and enlarged its Financial Crime Operations team
- The FCA will use the knowledge gained from this Thematic Review to inform consideration of financial crime risk management during regular supervisory processes (e.g. Firm Systematic Framework)
- The FCA made apparent at its recent Asset Management Conference on 30 October 2013 that it has a continuing appetite to scrutinise conduct matters in the asset management sector
Action to consider
Money launderers and terrorist financiers are likely to target asset management firms in future. As other parts of financial services strengthen their controls, would-be criminals will seek alternative ways to access the financial system.
As a minimum, all asset managers should have a documented gap analysis comparing their policies and procedures to the FCA’s findings. They should also have an action plan for any areas of poor practice that are identified.