In a recent speech (06 September 2023) made by Sarah Pritchard – Executive Director of Markets and International at the FCA – the regulator warned firms that they need take tougher action on proactively tackling financial crime or risk receiving a surprise visit from the City watchdog.

Speaking at the Financial Crime Summit 2023, Ms Pritchard detailed serious crimes – and commonalities of causations – which should have raised suspicious activity reports.

One case that was outlined was of a Walsall bank failing to flag people with bin liners stuffed with £700,000. The lack of action ended up costing NatWest almost £265m in fines for breaching anti-money laundering regulations and a criminal conviction.

Ms Pritchard went on to say the crimes not only cost corporations but also have damaging impacts on consumers, and that fighting financial crime remains a key part of their strategy.

As an outcomes-based and data-led regulator, Ms Pritchard emphasised the importance of results, noting that – whilst there has been an 8 per cent reduction in financial crime – there is still more to be done.

Ms Pritchard stated that:

“It is firms who are our first line of defence in the fight against crime. They need to understand their risks and calibrate their controls appropriately and proportionately. Those checks carried out by firms can disrupt serious criminality and protect the public. Taking early action can also save millions in fines down the line as well as the reputations of firms.”

Ms Pritchard added that firms who are carrying out “tick box” compliance exercises should not be surprised to find a visit from the FCA.

Ms Pritchard went on to say that fraud accounts for 40 per cent of all crime and can have sinister roots in human trafficking, terrorism and child exploitation. The FCA will be stepping up its testing of firm’s risk-based systems as well as their compliance with sanctions. The speech went on to say good practice and bad practice has been found while artificial intelligence could be used to strengthen security in the future.

She said: “Never be afraid to question if your firm has the right risk calibration – checking if it is proportionate – whether it is too high or too low. If you’re working in financial crime in the first line of defence, you should be able to see the golden thread between your activity and protecting the public from serious crime. We will increase our focus on whistleblowing in high-risk sectors and expect first line of defence employees to raise awareness of the process and benefits of whistleblowing for organisations and wider society. We will be testing how effectively these messages have been shared and will identify best practice across the industry.”

The FCA has put reducing financial crime as one of its ‘key super-charged priorities’ for this year and will be identifying firms where there may be security weaknesses.

In the last financial year, the FCA carried out 352 assessments of sanctions – four times more than the previous year. It has also opened more than 610 financial crime supervision, an increase of more than 65 per cent from the previous year.

With reference to Consumer Duty – which came into force in July 2023 – Ms Prichard stated that the FCA will also ‘look to see how firms are operating their financial crime systems with Consumer Duty in mind’.

In conclusion, Ms Pritchard warned firms:

“My message is clear – financial crime risks differ. Risk calibration is important. Technology has a great role to play – but do not outsource all responsibility to your third-party providers – understand your clients, their level of risk, and act proportionality. It is up to all of us to be alert to the risk, taking action which is both robust and proportionate to protect our consumers, our firms and our clean markets.”

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Part Three