News Details

15 May, 2009

Financial Crime - FSA Report

The FSA has completed a thematic review of how Firms are complying with the need to tackle Financial Crime and in particular systems and controls regarding prohibited individuals.

The report highlighted that are inadequacies in firms’ systems and controls to reduce the risks of dealing with prohibited individuals.

Risk assessment

Firms who believed they were somehow exempt from the financial sanctions regime if they processed only low value transactions – there is no minimum limit.

Firms who believed that individuals and entities on the list were all based overseas. There are some individuals and entities on the list that are UK-based.

Firms who believed financial sanctions screening was not necessary as they did not hold client money, did not make payments or dealt in products they assessed as low risk for financial crime. This is not the case.

Firms are reminded that under the Terrorism Order the prohibition extends to financial services as well as funds. Firms need to be careful when including product risk in their risk-based approach.

Firms who believed that insurance is a no or low risk area for financial sanctions and others who believed that UK financial sanctions did not apply to insurance.

Training and awareness

Staff at small firms generally displayed very low levels of awareness of the regime.

Firms should take appropriate steps to ensure that the staff with responsibility for ensuring that UK financial sanctions are not breached understand exactly what they need to do to comply with the firm’s financial sanctions policy and procedures.

Senior management have a key responsibility to ensure that all relevant staff understand and act in accordance with procedure.

Screening clients

As a result of the lack of awareness of financial sanctions among the small firms the FSA found that very few small Firms were screening clients at all.

When another authorised firm refers a client, firms should satisfy themselves that the client has been screened against the HMT list. One firm’s risk-based approach may not be suitable for another firm with a different risk profile, even if both firms are authorised by FSA.

Ongoing screening

Firms need to have a method of screening their customer database periodically - from daily to every three months. The screening also needs to extend to the directors and beneficial owners of corporate clients against the HMT list.

Firms should consider covering changes to direct or indirect ownership in their overall risk-based approach.

The majority of small firms surveyed and visited did not carry out periodic screening.



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