Financial Crime in Focus
Autumn 2023 Update

Welcome to the Autumn edition of Financial Crime in Focus, our roundup of the main issues and events impacting the AML regulatory space.


Your need-to-know round up of the latest developments, updates and new guidance for compliance teams around the UK.

  • The Economic Crime and Corporate Transparency Bill (ECCT) achieved royal assent on 26th October, the final stage in its long-anticipated journey to becoming UK law. Read more about what this means below.

  • It is concerning that of the 152,000 overseas entities registering with Companies House to buy, sell or transfer property or land in the UK, 109,000 failed to declare their UBOs. Introduced as part of the 2022 Economic Crime Act, this legislative requirement was designed to force anonymous foreign owners of UK property to reveal their real identities. But as highlighted by a recent report from the London School of Economics, the University of Warwick, and the Centre for Public Data, major gaps in the legislative scope are helping render it ineffective. The report goes on to make a number of recommendations, including reducing the UBO threshold from 25% to 5%. Read the report here.  

  • The Financial Conduct Authority (FCA) has set out its expectations for implementation of the so called ‘travel rule’ for end-to-end compliance on digital asset transactions. Details of the FCA’s Travel Rule for VASPs are online and we discuss it further, below.

  • The FCA’s latest ‘Dear CEO’ letter (8th September) focusses on a range of risk-related and operational resilience concerns related to Wholesale banks amid concerns that austerity pressures may lead to banks cutting compliance budgets and prioritising short term commercial interests over regulatory obligations. As our True Cost of Compliance research shows, operational costs are already growing at an unsustainable rate. In their first letter since the launch of their new integrated regulatory structure, the FCA calls on wholesale banks to ‘maintain high standards of control’ and strive for ‘operational resilience’. The argument for transition from manual to automated processes continues to grow. The full letter is available on the FCA’s website.

  • With ESG risk compliance continuing to grow in importance, the Home Office recently published new guidance on identifying the perpetrators of modern slavery. Understanding how modern slavery gangs control victims and disguise placement of laundered money is a vital skill for frontline staff in Banks and Building Societies, who can spot suspicious patterns and report suspected perpetrators. It’s hoped that the guidance; How to Identify and Report Perpetrators will make a real difference in eradicating this pernicious form of financial crime.

New robust laws to fight UK financial crime

The new Economic Crime and Corporate Transparency Bill will have a profound impact on the UK’s regulatory landscape and the businesses that operate herein. The Act introduces robust laws to fight fraud, counter corruption and bolster legitimate business and grants the UK authorities world-leading powers to proactively target organised criminals seeking to abuse the UK’s open economy.

The Act introduces robust laws to fight fraud, counter corruption and bolster legitimate business and grants the UK authorities world-leading powers to proactively target organised criminals seeking to abuse the UK’s open economy. It encompasses:

  • Reforms to Companies House: enabling it to play a greater role in disrupting economic crime and preventing abuse of the register, with responsibilities to safeguard the integrity of the UK business ecosystem.

  • Reforms to prevent the abuse of limited partnerships: tackling the misuse of limited partnerships, including Scottish limited partnerships, while modernising the law governing them.

  • Additional powers to seize and recover suspected criminal cryptoassets: enabling law enforcement to act more quickly to recover the proceeds of money laundering, fraud and ransomware attacks.

The Act is also designed to mitigate some of the hitherto restrictive aspects of the law in respect to financial crime prevention, including:

  • More confidence for businesses to share information in order to tackle money laundering and other economic crime, by disapplying civil liability for breaches of confidentiality for firms that share information to combat financial crime.

  • New intelligence gathering powers for law enforcement to allow proactive investigations relating to money laundering and terrorist financing without the need for a pre-existing Suspicious Activity Report.

  • And, the removal of non-value adding process requirements on businesses, to free up focus for high value activities and enable better prioritisation of law enforcement resources.

What to expect next: Companies House say there is no immediate need for companies to change their current procedures. Provisions such as identity verification require system development and secondary legislation before they can be put into practice. However, some other measures will be enforced in the near future. Watch this spaced for more updates. You can read more about the Act here.

Sanctions Update

The FCA’s, Sarah Pritchard lambasted banks at a recent conference for failing to implement adequate sanctions compliance controls. Using a data-led approach, banks were sent the same batch of sample data and asked to test their controls against it, with a number of banks earmarked for follow up visits.

Summarising the findings she said, “Good firms knew their client base, knew who they were dealing with and calibrated their sanctions alerting systems to UK and international lists. Bad firms left their screening to outsourced entities, didn’t understand the structures of their corporate client base and hadn’t calibrated monitoring to UK sanctions requirements.”

It all boils down to correctly implementing a risk-based approach to sanctions and ensuring organisational controls are properly set to reflect the full spectrum of risk categories it could be exposed to.

In its latest Sanctions Update the FCA makes clear that it and all other AML regulators via OPBAS will be working closely with the Office for Financial Sanctions Implementation (OFSI) to conduct supervisory visits and oversee significant improvement in sanctions controls in all supervised firms.

For its part, OFSI recently used its disclosure power for the first time to publish details of financial sanctions breaches and ‘name and shame’ both individual and company. This sends an important message to all regulated firms to up their sanctions controls and implement a true risk-based approach. OFSI points firms to Chapter 10 (newly added) of its Monetary Penalty and Enforcement Guidance.

Readers be warned! Stress test your sanctions controls against the data sources you use and get in touch with us if you need help.

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Are Regulators finally reigning in the wild west of the crypto world?

Virtual assets and virtual asset service providers are never far from the crosshairs of regulators, as evidenced by a number of developments in recent weeks, including ‘freeze and seize’ powers in the amended Economic Crime & Transparency Bill to make it harder for criminals to move their illegal assets beyond the reach of the authorities and the FCA’s Travel Rule, requiring the inclusion of counterparty information for cryptocurrency transfers. Yet, there remain some challenges to overcome in implementation, namely that current blockchain doesn’t contain counterparty information.

As if to underline why strong regulatory controls in this sector is so important, Chainanalysis produced some fascinating research revealing that 55% of all money laundering in cryptoassets is handled by just 270 providers. Criminals’ ability to convert cryptocurrency into cash could be dealt a significant blow therefore simply by targeting these major conduits, and in doing so, reduce the overall attractiveness of crypto as a money laundering tool.

Elsewhere in Europe, a recent MONEYVAL report revealed that as many as 80% of virtual asset sectors in its member countries are only partially, or are non-compliant with FATF standards in this area. The report concludes by highlighting best practices to raise standards.

While the Financial Conduct Authority (FCA) is actively taking measures to deny licenses to some companies seeking to operate in the UK, it is evident that the cryptocurrency industry is now subject to more stringent regulations and heightened oversight than ever before. In light of ongoing market and technological advancements, it is foreseeable that this sector will continue to evolve in accordance with emerging trends and typologies.

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NCA Director, Graeme Biggar Announces Release of National Strategic Assessment 2023

The latest National Risk Assessment provides vital intelligence into both the emerging and familiar money laundering threats facing this country. They include estimates of £12 billion in criminal cash being generated in the UK every year, and more than £100 billion being laundered.

Drawing on analysis from across law enforcement and other partner organisations, the assessment informs an evidence-based, collective response to organised crime and sets out what the public can do to reduce the risk of being a victim, or to spot and report suspicious activity.

Launching the new framework, Biggar said, “As the threat grows in scale, complexity and reach, so must our response,” adding, “by ensuring priorities are agreed, roles and responsibilities are clear, and activity, performance and impact are assessed, we can be confident the whole system will more effectively tackle this chronic and corrosive threat.”

FCA warning on benchmark ESG data quality

ESG is high on the regulator’s agenda, and with good reason. A wave of new compliance laws have been drafted to address issues such as ‘greenwashing’ whereby a company deliberately misleads on its green credentials.

It’s a particular challenge for the fund and asset management sectors where accurate and reliable benchmarking data is vital in determining the credentials of an ESG investment product. The FCA’s concerns prompted their latest ‘Dear CEO’ letter to all Benchmark Administrators, recently.

Robust due diligence will be essential whilst industry gets to grips with ESG, including high-quality adverse media data and other sources. Beyond greenwashing, a great number of prevalent ESG risks need to be effectively screened for – including modern slavery, human rights abuse, forced labour, health and safety issues and diversity and inclusion.

The ESG compliance agenda is only just beginning and the impact on the financial services sector will be significant.

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And finally:

The UK Government is seeking to improve governance of football following a raft of corruption scandals in recent years. A Sustainable Future - Reforming Club Football Governance sets out a range of proposals to improve governance involving stakeholders and the fans themselves. Of particular relevance is the call for enhanced Sources of Wealth checks on club owners, something we at LexisNexis Risk Solutions fully support. Read the full proposals here.

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