The Financial Conduct Authority (FCA) has published analysis of data submitted by firms as a result of REP-CRIM RegData reports through RegData submissions. The report covers over 2,300 firms for the period between 2017 – 2020 and gives some key insights into areas firms with different permissions should be focusing their efforts.

Politically Exposed Persons

Firms reported approximately 89,000 Politically Exposed Persons (PEPs) as customers in 2019/20 and 2018/2019, while this is a substantial decrease from 2017/18, it has been attributed by the FCA to the amendment of their guidance in 2017 to exclude the reporting of certain domestic customers as PEPs.

What is perhaps more unexpected is when the figures for retail lending are considered. Typically, retail lending – or consumer credit activity – is not considered to be high risk (when compared to other types of FCA activity). However, the reporting of PEPs in this industry is shown to be the third highest by sector and higher than those undertaking Investment Management and Retail Investment where you may expect PEPs to be more prevalent. What the report does not show is the controls those retail lending firms have for identifying and managing the risks of dealing with PEPs. Even if your firm considers the industry you operate in to be low risk, you must ensure that you are taking appropriate steps to mitigate the risk of your firm facilitating financial crime.

Automated Sanctions Screening

The number of firms reporting automated sanctions screening is increasing year on year, with a 16.5% increase over 3 reporting periods. However, the investment management sector has the highest number of firms that do not use automatic screening. Financial sanctions prohibit a firm from carrying out transactions with a person or organisation (the target) and in some cases will prohibit a firm from providing any financial services to the target.

While there is no requirement to undertake automated screening of sanctioned individuals and organisations, it is a criminal offence not to comply with a financial sanction. Therefore, it is vital for firms to ensure their screening process is effective. Those who are doing this on a manual basis risk human error. In addition, firm’s that have significant volumes of clients may be outlaying a considerable amount of staffing hours to complete these checks. Your firm should consider how it undertakes its sanctions checks and whether this can be made more effective and less prone to error.

Financial crime staffing

For the year 2019/20, firms collectively employed approximately 17,000 full-time equivalent staff in financial crime roles, this compares to approximately 15,700 in 2017/2018. Monitoring and addressing the risk that criminals abuse the financial system consumes a significant amount of firms’ time and resource. This is only likely to increase with the level of scrutiny on this area by both the FCA and regulators around the world. If your firm does not have an individual staff member focused on financial crime you should assess if the resources, you are devoting to it are sufficient to mitigate your risk. If they are not, the firm must take action by either employing a staff member with this focus or using an external consultant to assist with mitigation.

Customers exited and refused for financial crime reasons

A total of 761,437 customers were exited during the 2019/20 reporting period, which has more than doubled in the last 3 years and of this retail lending and retail banking sectors have exited the most customers for each of those years. The statistics show how concerned firms are with the financial crime risk posed by business it has previously taken on. Even if you believe your current financial crime controls are appropriate, the firm should consider undertaking a review of its historic business to ensure older clients do not exceed the firm’s current financial crime risk appetite.

How Can Scott Robert Help?

Scott Robert has successfully helped numerous firms to comply with their financial crime obligations through providing assistance and advice.

If you would like help or advice on any aspect regarding your firm’s financial crime obligations or ways of improving your existing processes, speak to one of our experts today by calling 0161 914 5727.