The U.K. Financial Conduct Authority has published a report on its thematic review assessing money-laundering risks posed to capital markets.
The review involved 19 participants including investment banks, recognised investment exchanges, trade bodies, a custodian bank, clearing and settlement houses, inter-dealer brokers and trading firms.
The report sets out what the FCA found in its review, the AML risks that were identified and fictitious case studies identifying different AML scenarios that firms may use to inform their own procedures.
The FCA expects firms to review their AML systems, taking this report into account. It is considering its supervisory approach, including the possibility of utilising data supplied under MiFID II to mitigate money-laundering risks.
Key money laundering risks (and possible mitigating actions) identified in capital markets include:
- Customer-based risk (as opposed to risks inherent to particular products or asset classes) and lack of visibility up through the customer chain, which may be mitigated through effective customer due diligence;
- Failures in ongoing monitoring of transactions for potential money-laundering activity that may be improved by, for instance, the convergence of AML and market abuse monitoring systems;
- Lack of suspicious activity reporting in relation to suspicions of money laundering; and
- Failures within firms to instill good AML practices amongst staff and provide adequate training; the introduction of the Senior Managers and Certification Regime may improve individual accountability by assessing fitness for certain roles and imposing conduct requirements upon certain employees.