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EMI Thematic Review

October 9, 2018

In October 2018, the FCA published its EMI thematic review into money laundering and terrorist financing risks in the electronic money (‘E-money’) sector. The FCA’s aim for this thematic review was to attain an increased understanding of the pertinent money laundering and terrorist financing risks for which e-money institutions (‘EMIs) are vulnerable, in addition to discovering how these firms are implementing controls to comply with the revised Money Laundering Regulations. The FCA’s thematic review exclusively focused on e-money products, such as prepaid cards and digital wallets.

The FCA assessed the anti-money laundering (AML) and Counter-Terrorist Financing (CTF) framework of 13 regulated EMIs. This assessment of e-money institutions’ controls and risks comprised of a pre-visit review of AML/CTF documents provided by the firms and an on-site visit by the FCA.

What Were The Findings?

Overall, the review established that the firms had reasonably effective anti-money laundering and counter-terrorist financing systems and controls. The FCA’s report suggested that EMIs had a good understanding of their AML/CTF obligations, indicating a reasonably strong compliance culture within these firms. However, the work did highlight some weaknesses; therefore all firms should avoid any complacency.

The FCA also documented examples of good and bad practice concerning firms’ AML/CTF framework. Some of the key findings from the thematic review are detailed below:

  • Despite most of the assessed firms having a business-level AML/CTF risk assessment in place (i.e. covering risks on products, jurisdictions, transactions etc.), there was evidence that these assessments were not always being used to effectively mitigate risks
  • Some EMIs had implemented tools to assist in calculating the risk of each customer, incorporating factors such as product type, jurisdiction and transaction volumes. However, there were inconsistencies in how frequently these customer risk assessment tools were used for Enhanced due diligence (‘EDD’) and ongoing monitoring
  • Weaknesses in EDD procedures were identified with some EMIs, including one firm where inadequate guidance was given to staff on acceptable evidence to demonstrate a source of wealth and source of funds
  • The majority of the EMIs assessed had set sufficient rules for their transaction monitoring systems and reviewed these rules regularly. Nonetheless, the FCA discovered that one EMI was failing to ascertain the purpose and intended nature of its business relationship with customers and transactions, inhibiting their ability to understand what constitutes a suspicious transaction for each customer
  • Whilst a few firms did not conduct regular onsite visits on their programme managers (i.e. their distributors), they did test the programme manager’s systems and controls by conducting file reviews on an ongoing basis

The findings demonstrate that all EMIs must be conscious of avoiding bad practice within its AML/CTF framework.

What are the Next Steps?

The FCA will continue to monitor e-money firms as part of its ongoing supervisory strategy. Any future supervisory work will take these findings into account and the FCA will address harm in individual firms where it sees it.

How Thistle Can Help?

Thistle can offer support to firms by reviewing their AML framework and recommending enhancements to ensure the firm’s compliance with MLR 2017 and industry guidance. Thistle can also conduct an AML implement project, which will involve an assessment of the firm’s money laundering risks and implement controls to mitigate these risks.

Thistle can also assist firms in completing financial crime data returns and putting an adequate process in place to collect the relevant data for their returns.

For further information, please visit our financial crime page.