Facing financial crime risk

Posted: 7th July 2015

Not surprisingly, I’ve been seeing Financial Crime Risk (FCR) progressively becoming a priority area for firms – and rightly so.

Firms that don’t place enough importance on defining and implementing the necessary systems and controls are more vulnerable to being exploited to further financial crime. This is harmful to the firm itself, the public and of course our entire economy. As a result, the fines imposed by UK and overseas regulators have grown to eye-watering proportions.

In future articles we’ll look at more specific FCR topics. For now, let’s look at the lay of the land, and in particular, where the focus for the FCA will be. The regulator will continue to concentrate on anti-money laundering, and anti-bribery and corruption.

There are also concerns on an international level that retail banks are overly ‘derisking’ their client base. They’re using regulatory worries around financial crime to discontinue services to certain groups of customers and business sectors.

The FCA will work with other regulators to analyse and address these concerns, specifically concentrating on the fact that a risk-based approach means managing the risk more effectively, rather than simply avoiding it.

Other areas the FCA intends to investigate and address as it flexes its muscles in FCR are:

• Helping firms to identify and tackle potentially manipulative behaviour in its role as regulator and supervisor of LIBOR and other benchmarks
• Combatting market abuse through education and engagement with the industry to drive cultural change in firms
• A closer look at the processes and controls in place at smaller firms
• Continued input into the UK implementation of the second Markets in Financial Instruments Directive (MiFID II) and the Market Abuse Regulation (MAR)
• Active monitoring of pension fraud following the recent pension reforms
• Improved arrangements and support for whistleblowers

As a result of intensified efforts in FCR by the FCA, and the mounting criminalisation of corporate and senior management misconduct, we expect to see criminal prosecutions increase in the financial services industry. It certainly will be an interesting time for the financial services sector.

As regulatory and public scrutiny over FCR increases, Consider the risks and challenges you need to confront in the face of financial crime, analyse any gaps in compliance, and take any necessary corrective action. Staying a step ahead will help your firm to lessen its vulnerability to financial crime.