2021 MLRO Annual Report – International Findings and Industry Guidance Overview

January 31, 2022 by Clare Curtis

FCA Business Plan

The FCA outlined in its 2021/22 Business plan that it wants firms to be effective in preventing market abuse and reducing the risks of financial crime. They have stated that they will continue to monitor transaction data reported to the FCA, assess STORs and pursue whistle-blowing reports and other intelligence. They have also started pursuing criminal proceedings under AML powers (removal of temporary permission, freezing injunction) and will continue to exercise these powers where necessary.

Dear CEO Letter – On 29 June 2021, the FCA published a Dear CEO letter that it had issued detailing common themes coming out of its recent assessments of retail banks’ financial crime systems and controls. The FCA reminded firms that the Senior Managers and Certification Regime (SMCR) places a responsibility on all senior management to counter the risk that their firm might be used to further financial crime. The FCA added that in its supervisory work it will continue to consider carefully whether the relevant SMF holders have carried out their responsibilities appropriately. Common weaknesses identified by the FCA included:

  • Governance and oversight – especially when in a Group or Head Office context.
  • Risk Assessments – often too generic to cover different types of risk exposure.
  • Transaction Monitoring – Group led monitoring solutions not calibrated appropriately for the UK regulated entity.
  • Suspicious Activity Reporting – Process to raise internal Suspicious Activity Reports (SARs) is either unclear, not well documented or not fully understood by staff.

Statement on Afghanistan – On 31 August, the FCA published a statement on its website reminding firms about the financial crime risks linked to Afghanistan. Specifically, in regards to the Money Laundering Regulations (MLRs), the FCA points out that presently for those purposes, Afghanistan is not listed as a high risk country. However, firms are required by Regulation 33(1)(a) to apply risk sensitive enhanced due diligence measures where there is a high risk of money laundering or terrorist financing, Regulation 33(6) sets out factors that firms may use in their assessment including, but not limited to, country risks.

Letter to House of Commons Treasury Committee – On 10 August 2021, the FCA published a letter that it had sent to the Chair of the House of Commons Treasury Committee, Mel Stride MP, regarding the freezing of bank accounts of certain vulnerable customers. In the letter the FCA explains, among other things, what customer service standards it expects from banks when they move to freeze bank accounts.

JMLSG Guidance

On 29th December 2021, the Joint Money Laundering Steering Group (JMLSG) published amendments to Part I Chapter 5.7 (Monitoring customer activity) of its Guidance, together with a clarificatory amendment to Part II Sector 16 (first page). The new text is available under the “Revisions” tab under “Guidance” on the JMLSG website (www.jmlsg.org.uk) and has been submitted to HM Treasury for Ministerial approval.

HMT

As part of the Economic crime plan 2019 to 2022, a review of AML legislation is currently underway, with analysis of information sharing, the suspicious activity reporting (SAR) regime and AML effectiveness. Whilst most of the plan is focussed on dealing with economic crime as a whole there are sections which are targeted at dealing with specific threats, particularly money laundering and fraud. In 2021, the UK held the G7 Presidency and the UN General Assembly Special Session on Corruption. Details of all 2021 activity will be contained in the Year 4 update due in early 2022.

FATF

The Financial Action Task Force (FATF) keeps a list of countries that have deficient AML systems or are uncooperative with AML efforts; those countries are called Non-Cooperative Countries and Territories (“NCCTs”). To note, since the start of the COVID-19 pandemic, the FATF has provided some flexibility to jurisdictions not facing immediate deadlines to report progress on a voluntary basis. In October 2021 the FATF published an updated list of jurisdictions under increased monitoring, new additions included Jordan, Mali and Turkey.

Jurisdictions with strategic deficiencies were Albania, Barbados, Burkina Faso, Cambodia, Cayman Islands, Haiti, Jamaica, Jordan, Mali, Malta, Morocco, Myanmar, Nicaragua, Pakistan, Panama, Philippines, Senegal, South Sudan, Syria, Turkey, Uganda, Yemen and Zimbabwe.

Jurisdictions no longer subject to increased monitoring were Botswana and Mauritius.

The FATF also called on its members and other jurisdictions to apply countermeasures to protect the international financial system from the on-going and substantial money laundering and terrorist financing risks from the Democratic People’s Republic of Korea and Iran.

Fifth and Sixth Money Laundering Directive

The UK transposed the Fifth Anti-Money Laundering Directive into UK law in January 2020. However, the UK has opted out of transposing the Sixth Anti-Money Laundering Directive (which was due by 13th December 2020). This is due to the fact that many of its requirements are already covered by existing UK Law.

National Crime Agency (NCA)

In July 2021, the NCA published its annual report for 2020/2021 detailing its performance over the last year. The NCA:

  • Secured over 4,000 disruptions
  • Arrested over 1,200 individuals in the UK
  • Restrained, froze or seized over £150 million
  • Safeguarded over 1 million victims of cyber crime
  • Took down or suspended over 270 criminally controlled websites.

The report can be found here.

Fines and action

In 2021, British regulators fined a total of £567.7 million. Among these were high profile cases including HSBC who were fined £64 million for AML process failings spanning eight years on 17th December 2021. The FCA said it found key weaknesses in HSBC’s transaction monitoring systems over a period from March 2010 to 2018. NatWest was also fined £264.8 million for anti- money laundering failures for failures in the way it monitored and scrutinised transactions.

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