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What has happened?

In its increased monitoring of Annex 1 Firms, the FCA's scrutiny has unearthed common themes across various AML control areas. The FCA's latest Dear CEO letter issued to firms on 5 March 2024 considers common AML weakness themes.

The letter identifies weaknesses in four key control areas:

1. Business Model Discrepancies

One notable revelation pertains to discrepancies between registered and actual activities within firms. The FCA emphasises the importance of aligning business models with registered activities and highlights instances where Financial Crime controls failed to keep pace with business growth. This underscores the imperative for firms to regularly reassess and adapt their controls to evolving operational landscapes.

2. Risk Assessment Shortcomings

The FCA's scrutiny extends to Business Wide Risk Assessments (BWRAs) and Customer Risk Assessments (CRAs), revealing significant weaknesses. Common issues include the absence or inadequacy of BWRAs and a lack of tailored CRAs, failing to address individual customer characteristics and associated risks. Firms are urged to refine and customise their risk assessments to strengthen their control frameworks.

3. AML, Ongoing Monitoring, and Ambiguous Policies

The FCA's letter highlights a prevalent lack of detail in policies, creating ambiguity around staff actions to comply with obligations under the Money Laundering Regulations (MLRs), particularly during onboarding. This signals the importance of comprehensive and transparent policies to guide staff through due diligence processes, ongoing monitoring, and adherence to regulatory requirements.

4. Governance, Management Information, and Training Deficiencies

The final key area of concern revolves around deficiencies in resources for mitigating financial crime risks. Personnel shortages, inadequate Financial Crime training, and an absence of a clear audit trail for Financial Crime-related decision-making are emphasised. Firms are encouraged to bolster governance structures, invest in training programs, and ensure a comprehensive audit trail to strengthen their resilience against financial crime risks

What do firms need to do?

In response to these findings, the FCA directs Annex 1 Firms to conduct a thorough gap analysis within six months of receiving the letter. Conducting a gap analysis will support firms in identifying and promptly addressing any weaknesses found in their AML frameworks.

Thistle Initiatives can support you in a number of ways across our service offering including;

• AML Audits
• Conducting or reviewing your BWRA
• Policy and procedural uplifts
• Design and development of bespoke financial crime training.

Conclusion

As the financial landscape evolves, so do the challenges associated with money laundering. The FCA's in-depth analysis of common AML weaknesses provides a roadmap for firms to navigate these challenges effectively. Embracing these insights is not just a regulatory must, it will also support the success and integrity of financial organisations in an ever-changing landscape.

How can we help you? 

Thistle Initiatives has supported firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting you as and when, its team of specialists can serve as your right hand in meeting and complying with AML regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Contact our specialist financial crime team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.