AML/CTF COMPLIANCE FOR WHOLESALE MARKET FIRMS IN THE UK
R&C: In your experience, what types of wholesale market firms can benefit from improving their anti-money laundering (AML) and counter terrorist financing (CTF) systems? What kind of design and testing work might this entail?
Hadley: It is now over 12 months since the Financial Conduct Authority (FCA) issued its ‘Dear CEO Letter’ to wholesale market broking firms and nearly a year since its ‘Understanding the Money Laundering Risks in the Capital Markets’. As a result, all wholesale market participants are under continued and increased regulatory scrutiny, so that both buy side and sell side firms can benefit from enhancing their anti-money laundering (AML) and counter terrorist financing (CTF) systems. In the meantime, the regulator continues to conduct further work to follow-up on the findings of its capital markets thematic review. Institutions need to ensure they can demonstrate they are conducting an annual financial crime business-wide risk assessment – of which AML and CTF are key parts – to allow them to identify the risks they are facing, particularly any new emerging risks. From this key starting point, firms can ensure they have the correct governance structure in place to oversee the mitigation of risks, maintain a record of controls in place, including an assessment of their strength, and implement appropriate policies, procedures and processes. Financial institutions can then produce focused, quality management information to illustrate the scale and types of risk they are facing and can see whether the controls are working.
R&C: Could you describe some of the common gaps or shortcomings that you have seen in AML/CTF governance arrangements?
Hadley: A common theme is allocation of the ownership of financial crime risks – including those arising from money laundering (ML) and terrorist financing (TF) – within an institution between the first and second lines of defence. Instances have been observed where either the ownership effectively resides in the second line or a firm has been unable to clearly demonstrate that ownership belongs with the first line. Linked to such scenarios are examples of ML and TF issues not being recorded as having been assessed and reviewed appropriately by a board or its underlying committees. The regulatory expectation is that compliance’s role should be providing assurance regarding work for which the first line is responsible.
Jul-Sep 2020 Issue
FTI Consulting