Legal Futures AML for professions – preparing for transition to FCA regulation

By Legal Futures Associate Miller Insurance ^[1]

The recent UnConference event at Miller’s London offices (run by E3 Compliance Training’s Compliance Collective) set out to inform risk and compliance professionals concerned about the likely move to FCA regulation of anti-money laundering.

With a range of experts in the room, the event addressed the FCA’s approach to AML inspection, dual regulation risks, and how to start preparing for the change in regulator.

FCA’s approach to AML regulation

We can expect the FCA to take a much more data-driven approach than other professions regulators (such as the SRA) currently take. Firms will likely have to submit a larger and more specific set of data than they do at present, with absolute deadlines for submission.

Data sets the FCA will collect could include:

Number of transactions by type in period, both opened and completed
Financial values
The number of high-risk jurisdiction clients and transactions
The total number of clients you have completed AML checks for in the year (and details of how many of those required enhanced due diligence and how many were ‘fails’)
Source of funds data
The number of sanctions matches and false positives

Based on its current approach, we can expect that the FCA will require all data fields to be completed to enable submission. Gaps in data, and guesswork, are liable to lead to regulatory censure. ‘If it isn’t recorded, it didn’t happen’.

As long as data submissions are timely, accurate and complete, and do not flag particular concerns, professional firms may have less interaction with their regulator than they currently do. With its data led approach, much of the FCA’s actions are driven through coordinated, thematic reviews.

The FCA has a very structured approach to guiding firms. The handbook is large but structured, to help firms see what applies for their permissions, with updates being recorded so the chronology of changes is easy to understand. The guidance provided by the FCA is typically viewed as clearer, more consistent and more prescriptive than some others.

Impact of regulatory change on your business

Regulators that face the removal of their AML role, may well shift their focus to other areas – for example, conflicts, conduct and ethics. There is a concern amongst many professionals that their existing regulators will use breaches in the AML regulations detected by the FCA, as the basis for breaches under the remaining rules. For instance, regarding a breach of AML regulations as a de-facto breach of conduct rules.

Whether or not your existing (AML) regulator maintains a watching brief on AML processes, there is a real risk that if, in future, the FCA identifies some process failure in relation to AML (and that process failure also has wider implications for your professional practice), that will result in regulatory action by more than one regulator. In effect, double regulation.

The FCA is looking towards a permissions regime where both firms and individuals will be authorised from an AML perspective. This will bring individual responsibilities to the fore and raise the stakes for individuals in a firm.

5 practical steps to consider

Don’t panic! But start planning.
Keep abreast of new information as it becomes available. Find trusted people who provide regular information updates that will help inform your decision-making.
AML regulation is not changing. Undertake a review to make sure that your policies, processes and procedures fully comply today with the existing regime. That will reduce the work you have to do down the line to ensure you are compliant with the new regulator’s requirements.
Audit your practice management and AML systems to ensure that they are capturing or can capture the data you are likely to need. Where you are relying on third party data, ask for details about their data sources and how they ensure accuracy. Make sure you are capturing the right information, for example, your onboarding processes should be able to demonstrate meaningful compliance with your firm-wide risk assessment.
Join in the conversation with the Compliance Collective [Compliance Collective. Join The Conversation ^[2]].