On the 29th of June, the Financial Conduct Authority (FCA) published the “Dear CEO letter” which was originally sent to retail banks on the 22nd of May. In it, the authority enumerates the common weaknesses they identified during their recent assessment of retail banks’ financial crime systems and controls. Additionally, the FCA orders banks to demonstrate more efforts in addressing persistent AML framework failings, and asks them to complete a comprehensive gap analysis of all AML weaknesses by the 17th of September. If mitigation plans are not implemented to close the gaps revealed by the analysis, banks could face serious regulatory interventions. To help you with this, we have prepared a summary of the letter and written some words of advice that could support you in better preparing for the deadline.
A summary of the FCA’s letter to retail banks
On the 22nd of May, after completing an assessment of retail banks’ financial crime systems and controls, the FCA issued a letter to all CEOs asking for more action in response to common control failings identified in anti-money laundering frameworks.
The letter started by detailing five key areas where common weaknesses were identified: governance and oversight, risk assessments, due diligence, transaction monitoring, and suspicious activity reporting (SARs). A summary of each point is as follows:
The FCA warned that some banks fail to evidence the required level of financial crime governance and oversight.
Banks that received this letter are expected to complete a gap analysis against each of the outlined weaknesses by the 17th of September 2021. The FCA also demands that any significant mitigation actions to close gaps identified during this assessment are put in place in order to meet the regulatory requirements.
The FCA’s letter demonstrates a paradigm shift in the financial crime arena. The direction is set for the FCA to become more stringent in its role and sanction banks that do not implement the right frameworks. In a way, they are shifting gears and following the US lead, where a more punitive approach has driven more results. The pressure on senior management will also increase as they will need to prove a detailed understanding of the financial crime risks involved and also have appropriate oversight of control measures and governance processes.
In this new model, the use of technology seems inevitable to cope with the speed and agility employed by fraudsters and the constant extensions of the regulatory requirements in AML, risk assessment, customer screening, and transaction monitoring. Banks can only use new technologies like AI. This will allow them to constantly adjust their financial crime framework while displaying the required level of transparency.
Seeing the FCA strengthening their approach will force banks to stop their platforms and services being used to buy and sell people, as well as stopping the facilitation of the online exploitation of children. This is a positive step forward. However, this deadline does not leave banks with a lot of time to act.
Carrying out a detailed assessment and demonstrating that corrective actions have been implemented can be burdensome, but with the right tools and expertise, you can use this opportunity to meet the requirements, as well as to improve the efficiency of your frameworks.
As mentioned, adopting new technologies and tools can support you in this exercise. To rapidly fine-tune your transaction monitoring system and address one common gap identified by the FCA, our clients have implemented RedCompass Labs D1R4FinCrime. This is a game-changing data-led solution that uses AI technology and production data to tune and test your AML, sanctions and fraud systems, and ensures the highest degree of accuracy and efficiency. To help you detect Modern Slavery, Human Trafficking and Child Sexual Exploitation cases, and meet the FCA’s requests, you could sign up to access (and implement) the award-winning RedCompass Labs RedFlag Accelerator, the world’s most comprehensive database of typologies for the financial sector, which helps you detect warning signs within your payment transactions.
Finally, don’t hesitate to contact a specialist if you need support with your assessment and recovery plan. As we are already seeing, the consequences include personal liabilities, investigations, and massive fines that could damage your customers and your institution. Whether you need a fast assessment or a workshop on the future of Financial Crime, RedCompass Labs is always here to help.
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