Niall Hearty of Rahman Ravelli considers the situation
The Financial Conduct Authority ( FCA) has stated that wholesale brokers must improve their efforts to identify and prevent money laundering.
Following a review of brokers' activity, the FCA has said they need to enhance their systems, controls, risk awareness and training. The FCA focused on wholesale brokers in its review because of the important role they play in capital markets in facilitating deals.
The FCA said there have been improvements in customer risk assessment, onboarding processes, governance and oversight, and collaboration between trade surveillance and transaction monitoring teams since its 2019 Thematic Review; which aimed to pinpoint money laundering risks.
But it made clear there are still areas where there is a need for firms to be ensuring better protection against money laundering. The FCA review cited an underestimation of the risks of money laundering that firms are exposed to, an over-reliance on others in the transaction chain completing appropriate due diligence checks on customers, limited information sharing between firms, and insufficient awareness of parts of the suspicious activity reports procedure.
Steve Smart, FCA joint executive director of enforcement and market oversight, said: "The flow of capital is an essential part of a thriving and competitive market, but tainted cash must not be allowed to pollute the rest.
"For the UK financial services industry to grow, investors and institutions need to have trust in it. Integrity is vital for that, and firms play a key role in helping to detect criminal activity. Firms need to keep their controls under review and ensure they are effective against financial crime. '
This review of brokers was a follow-up to the Thematic Review of 2019 and shows that the FCA is continuing to supervise risk with some brokers to ensure that the appropriate systems and controls are in place. This is not necessarily a bad thing as, although the FCA found that progress has been made, more can be done to combat money laundering risks.
Wholesale brokers need to ensure that they continue to develop systems, controls and risk awareness to combat money laundering. This will inevitably mean additional training to ensure that their approach to these risks is operating effectively.
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