Hundreds of firms targeted by FCA in MLRO crackdown
Update
The FCA targeted hundreds of firms as part of a crackdown on money laundering reporting officers (MLROs) last year. Financial News reported last March that the FCA had contacted firms who had churned through three or more MLROs in the preceding three years. In some cases, it said, significant turnover in this function had compromised effective oversight.
The FCA expressed concern that a revolving door in such an important role, one tasked with making sure dirty money is not flowing through the firm, could be a sign of poor culture or a lack of resources dedicated to the position.
A Freedom of Information Act request revealed that the FCA wrote to 643 firms asking them to explain why staff had filled the position for such short periods. The regulator targeted a sample of firms for further enquiries, but Financial News said the FCA had not clarified how many firms it followed up with or what the outcomes of those probes were.
Matthew Drage, managing director at consultancy Square 4, who previously worked in risk functions at Deloitte and KPMG, said ‘That feels higher than I would have expected, I would be really interested to understand the split between permanent staff and contractors in role. I’m aware the FCA is having real issues with contractors filling the void for permanent staff in senior management function positions. Clearly, high turnover in such roles could be an indicator of potential issues at a firm level.’
Ashurst Risk Advisory partner Matthew Russell said a number of factors could be behind the figures, including an increased focus on individual accountability, particularly in relation to financial and economic crime. He added that: ‘The number of Dear CEO letters during this period that have required MLROs to review controls and recommend enhancements where gaps have been identified. I suspect they may not always have got senior management buy-in to the changes that may have been required, putting them in a difficult position.’
One compliance consultancy told Financial News that the FCA wrote to one of its clients after it went through three MLROs in three years. Having made further enquiries, the FCA decided the firm was low-risk and didn’t justify a full-time role solely for money-laundering issues. The firm tried to fill the role internally, but staff were reluctant to take on those responsibilities and asked to be replaced.