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FCA Sounds Alert Over Weak Money Laundering Controls - Dear CEO Letter

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Francesco Fulcoli - Chief Compliance Officer

The UK's financial regulator has sent a serious warning to financial institutions after identifying widespread failings in how firms are preventing money laundering.

In a letter to the chief executives of regulated firms, the Financial Conduct Authority (FCA) outlined common weaknesses it has found through assessments of how so-called 'Annex 1 firms' - financial businesses that are not fully authorised but still conduct regulated activities - are complying with anti-money laundering rules.

Key areas of concern identified by the FCA include discrepancies between firms' registered business activities and what they actually do. The regulator says some firms have failed to properly notify it about changes to their businesses.

There are also issues around how well firms understand the money laundering risks they face. The FCA says many 'Annex 1' businesses have poor or lacking assessments of risks to the firm as a whole as well as for individual customers.

Due diligence checks on customers are another problem area. The FCA found policies and procedures for customer due diligence are often unclear, out of date or lack sufficient detail on what staff should do. Monitoring of customers over time is also poorly documented in some cases.

Governance and oversight of financial crime controls is a further weakness highlighted. The FCA reports resource shortages in financial crime teams, inadequate staff training and a lack of proper records about financial crime decision making at senior management levels.

The failures identified mean criminals could more easily abuse some financial businesses for money laundering. The FCA says poor controls damage the integrity of UK financial markets.

In response, the regulator has ordered the chief executives of all 'Annex 1' firms to complete a review within 6 months to identify any gaps in their anti-money laundering frameworks. Action must then be taken to address shortcomings.

The FCA says it will follow up with businesses and may use enforcement tools like fines if responses are deemed inadequate. Third party audits could also be required in serious cases.

A spokesperson said: "Protecting the UK financial system from abuse by criminals is a top priority. While many firms have strong controls, we've found too many falling short of standards. Firms must raise their game on anti-money laundering or face regulatory consequences."

Experts warn the letter indicates increased regulatory scrutiny of smaller financial services businesses. Firms are advised to urgently strengthen financial crime policies, oversight and staff training in response to this FCA alert.

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