LEGAL EASE: Financial crime control

There is a question whether the regulatory reform of the UK’s Financial Services Authority (FSA) in April is merely cosmetic or will result in substantive change in financial services regulation.

The reform could arguably be considered a mere rebranding; the new Financial Conduct Authority (FCA) is generally made up of the same staff carrying out the same or similar functions as in FSA.

Even if this is the case, what the change has done is give the regulator the impetus to toughen up and be more proactive.

This change in ethos and approach was outlined by the FSA, which said that the FCA will be a more proactive, interactive and forward-looking regulator than the FSA, which will involve a judgment- led approach intended to prevent, rather than respond to, customer detriment. 

One of the key areas of regulatory focus for asset management firms in 2013 is the systems and controls in place to tackle financial crime.

In the FSA’s October 2012 Financial Crime Newsletter, the FSA announced that it will be conducting a thematic review into anti-money laundering, sanctions breaches and anti-bribery and corruption systems and controls in asset management firms, to be published in the third quarter of this year and the review will include examples of good and poor practices.

This follows a similar such review into anti-bribery and corruption, and anti-money laundering measures in investment banks, which led to the FSA issuing significant fines to three banks. This includes a fine
for the money laundering reporting officer (in his personal capacity) for failing to establish and maintain adequate controls.

It is time for asset managers to ensure that their house is in order as the FCA is most certainly watching.

Some practical steps include:

  • Ensuring you understand the risks associated with your business in the context of financial crime. The FCA will apply a risk-based approach and it is important that firms understand the risks associated with their businesses and implement suitable procedures in accordance with this risk assessment.
  • Ensure there is senior management buy in. The FCA has indicated that senior management play a key role and they will be held accountable. 
  • Regularly review and update financial crime procedures – business risks and the relevant rules change and procedures should be updated to take account of these.
  • Ensure all staff have sufficient training on financial crime procedures.
  • Learn lessons from enforcement actions. 
  • Look at the spirit of the FCA’s rules rather than the letter of them; following the FCA’s Principles for Business is critical and much of their enforcement action has been based on the principles.

As well as financial crime, the FCA has also indicated that it is (or will be) focusing on other areas in the asset management industry. These include the responsibility of host authorised corporate director firms, the management of conflicts of interest and the development of new products.

This is a particular focus generally for the FCA which now has greater intervention powers and their focus includes issues such as fee structures, suitability of products and distribution channels.

Eve Ellis is a partner at Charles Russell LLP and co-head of its financial services sector

©2013 funds europe



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