Reports of FCA Spot Checks on AML and Sanctions Controls: Separating Fact and Fiction

March 6, 2019 by ACA Compliance Group

Press coverage this week picked up a story about the Financial Conduct Authority (“FCA”) warning UK hedge fund managers of imminent spot checks on their financial crime controls. Naturally, this has raised questions from a number of our clients about whether this signals a significant wave of investigative activity on the part of the UK regulator. In this Flash Alert, we consider the facts behind the press story, and what actions firms can take now in anticipation of such enquiries.

The facts

One regulatory consultancy appears to have a small number of clients who received a letter from the FCA last week advising them that they will receive a half-day visit in late March or early April to assess the firm’s systems and controls relating to anti-money laundering and financial sanctions. To date, we are not aware of any of our clients receiving such a letter, so it would appear that the tone of some of the press coverage is somewhat overstated.

Is this the start of a new campaign or more intrusive supervision on the part the FCA?

In our opinion, no on both counts. The programme of on-site visits is not new: we saw a similar (relatively small) sample of firms approached in late-2016. More likely, this is an extension to the previous work, probably looking more closely at issues identified last time, possibly looking at a specific sector (e.g. private equity), or possibly both.

What could the FCA ask?

Although we have not seen any of the letters sent out last week, the content appears to be identical to the 2016 sweep referred to above. Such a visit would be conducted by two members of FCA staff and consist of interviews with key members of staff and “walk-throughs” of the firm’s systems and controls if appropriate. The focus of the assessment is as follows:

  • Governance arrangements, including Management Information in relation to managing anti-money laundering (“AML”) and financial sanctions risks;
  • Assessment of financial crime risks, including the identification of high-risk or sanctioned customers;
  • Policies and procedures to address the financial crime risks specific to your firm;
  • Customer due diligence and on-going monitoring, particularly of high-risk customers;
  • Staff training and awareness of risk areas.

What should I do to prepare?

We recommend that firms take this opportunity to review their arrangements to at least provide comfort that such a visit from the FCA would not cause embarrassment or worse. Here are some ideas on simple checks that could be carried out:

  • Has the Money Laundering Reporting Officer (“MLRO”) provided both an AML/Financial Crime Risk Assessment, and an annual MLRO report, to the firm’s governing body within the past 12 months, and were these signed off on behalf of that body?
  • Has the firm’s AML/Financial Crime Policy and Procedures been reviewed and updated within the past 12 months, including references to the Money Laundering Regulation, 2017?
  • Has the firm visited the fund administrator in the past 12 months to review their Know Your Customer (“KYC”) and due diligence procedures? As part of that, was the manager’s own risk tolerance discussed, and were you given sight of the administrator’s own MLRO Report?
  • Has the firm provided all staff with training on AML and financial crime in the past 12 months, and were records of both content and attendees retained?

Firms should also check any responses previously made to the FCA through the REP-CRIM (Financial Crime) return on GABRIEL for consistency with any narrative provided on such a thematic visit.

How ACA Can Help

ACA clients should, of course, contact us immediately if they are in receipt of such a letter from the FCA. We can assist with the collection of documents and the preparation of potential interviewees.

For more information about this Flash Alert, please speak to Mary Campion, Martin Lovick, or your usual ACA consultant or contact.