6 Key Changes To The FCA's Financial Crime Guide: Part 1

On 29th November the Financial Conduct Authority (the FCA) published changes to its Financial Crime Guide (the FCG). 

The updates made to the FCG reflect insights from the FCA’s supervisory work on financial crime.  The regulator has also incorporated key messages from their recent publications, including thematic reviews and enforcement actions, so it is a really useful tool for Money Laundering Reporting Officers and compliance teams.

There are 6 key changes to the guide which we think firms should know about. 

What is the Financial Crime Guide?

If you’re not already familiar with it, the ‘Financial Crime Guide: A firm’s guide to countering financial crime risks’, can be found in the FCA Handbook. It aims to improve understanding of the FCA’s expectations of the firms it regulates when it comes to financial crime. 

The Guide helps firms to assess the adequacy of their financial crime systems and controls, and to proactively remedy any deficiencies. It does this by providing guidance on financial crime systems and controls, both generally and in relation to specific risks such as money laundering, bribery and corruption, and fraud.

It contains various self-evaluation questions, along with examples of good and poor practice, drawn from the FCA's work, to cover emerging risks and concerns. The FCG also references case studies, which have been refreshed to draw upon more recent FCA enforcement notices.  

6 changes to the FCA’s Financial Crime Guide

The 6 changes to the Financial Crime Guide that we think firms should take note of are:

1.      Sanctions Compliance

In recent times, the FCA has been conducting extensive reviews of firms’ sanctions systems and controls, and the output of this work has been fed into the FCG.

The changes made include:

• expectations for the governance arrangements to oversee sanctions systems and controls;

• the importance of management information in ensuring that the operation of sanctions and controls is resourced and monitored effectively;

• the critical role of a risk assessment in identifying and managing existing and future sanctions risks;

• emphasis on customer due diligence / know your customer procedures incorporating and managing sanctions risks;

>> What's the impact?

Given the continuing changing global political and economic landscape and the importance of not breaching UK and other sanctions regimes, there is a lot to stay on top of. It is key that your firm can show understanding and awareness of both existing and future sanctions risks. The publication means there is no excuse for not having effective governance and oversight of your firm's sanctions control measures.

2.      Proliferation Financing (PF)

The FCG has been updated to explicitly reference proliferation financing – financing of the proliferation of chemical, biological, radiological and nuclear  weapons – throughout.  It incorporates a 2022 update to the Money Laundering Regulations which requires firms to carry out (sanctions and) proliferation financing risk assessments.

The update also includes guidance on how firms can identify and mitigate their proliferation financing risks, especially in relation to trade finance and cryptoassets.

>> What's the impact?

Including proliferation financing in the FCG means that your firm needs to include PF content in your policies, if that was not already covered. Critically PF should now feed into your customer risk assessments and business-wide risk assessments so you will want to widen the scope of your discussions and processes to allow for this.

3.      Transaction Monitoring

The FCG provides updated guidance to help firms implement and monitor transaction monitoring (TM) systems and support responsible and innovative new approaches, for example through the use of artificial intelligence (AI).

There are new self-assessment questions and examples of good and poor practice clarifying the FCA’s expectations for firms to ensure:

• the control framework around TM monitoring arrangements are effective;

• that triggers in automated TM systems are set in a way appropriate for the risk the firm faces;

• TM alerts are used to inform the risk assessment of individual customers and as part of their continuous monitoring of their overall financial crime control framework;

• decision-making on changes to TM systems include robust judgement and testing of outcomes; and

• sufficient oversight, resource and expertise is given within the TM space.

>> What's the impact?

Whether automated, manual or both, the FCA will be looking at firms to test their transaction monitoring controls. You will want to be able to evidence the effectiveness of transaction monitoring controls as part of your firm’s overall financial crime risk assessment. 

Click here for Part 2 of this article, where we cover the final 3 things to note from the update and look at the next steps firms should take following the update.