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FCA – At a Glance

  • FCA is the UK’s financial watchdog that regulates financial services such as banks, investment companies and payment services.
  • FCA expects regulated firms to adopt a risk-based approach and focus on strong governance and oversight through effective due diligence for AML compliance.
  • Citadel365 helps firms meet FCA AML requirements with a central platform that ensures clear oversight, consistent controls, adequate due diligence, and proper documentation.

Understanding the FCA’s Authority Over AML/CFT Compliance

The Financial Conduct Authority (FCA) is an independent body that regulates the financial markets and firms in the UK. FCA oversees investment firms, banks, fintechs, insurers, and other financial institutions and ensures they comply with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) obligations.

The regulatory authority aims to safeguard consumers, ensure market integrity, and reduce financial crime. FCA, further, ensures that financial institutions adhere to HM Treasury rules and regulations, and report suspicious activity to the National Crime Agency (NCA).

FCA expects firms to assess business-wide risk, set clear governance, and put effective control measures to detect and prevent financial crime and meet regulatory requirements.

FCA AML/CFT Risk-Based Supervision and Key Expectations

FCA uses a risk-based supervisory model, focusing on high-risk firms and sectors exposed to ML/TF activities. The authority categorises firms based on the difference between their inherent risk (the risk businesses possess before measures to prevent money laundering) and their residual risk (the remaining risk after controls are put in place). Firms with high residual risk are likely to be more supervised than others.

Further, FCA expects firms to adopt Business-Wide Risk Assessment (BWRA) while drafting their AML/CFT policies and procedures, reflecting a tailored approach to risk prevention or mitigation. FCA mandates applying AML controls based on the business’s nature, size and risk, and performing ongoing monitoring to stay ahead of ML/TF risks and mitigate them.

Under the Senior Managers and Certification Regime (SM&CR), the FCA mandates that roles and responsibilities be clearly defined, that adequate staff training relevant to current market risks and recent typologies be provided, and that a culture of compliance, where ethical conduct is the standard, be established.

Common AML/CFT Risk Typologies Flagged by the FCA

Sectors such as payment services, fintech, crypto assets, retail banking, correspondent banking, and online trading are highly vulnerable to money laundering practices due to their structures and operations.

Regulated firms often fail to correctly identify and verify their customers and beneficial owners, and detect unusual transaction patterns, demonstrating weak due diligence and ongoing monitoring failures.

Further, FCA flags legacy systems that fail to monitor transactions appropriately and generate real-time alerts. These systems ignore red flags and allow criminals to commit crimes, going unnoticed.

Firms’ poor compliance results in ML/TF crime, such as smurfing, misuse of complex corporate structures, TBML, and unusual transfers, leading the FCA to take enforcement actions.

FCA Enforcement Actions and Lessons for Regulated Firms

When regulated firms fail to prevent financial crime, the FCA imposes strict monetary penalties, restricts certain business operations, and ensures fixes through remediation programs.

Regulated firms that lack adequate governance, staff training, modern technology, up-to-date customer information, ongoing monitoring, real-time screening, and have greater reliance on manual processes likely face FCA enforcement actions.

To overcome the FCA enforcement actions, regulated firms must constantly update their systems and ensure they detect threats in real-time. Further, senior management must take accountability for compliance failures and ensure the conduct of staff training for effective AML/CFT compliance. In addition, the firm must document controls through effective audit trails for adequate regulatory reporting.

Supporting FCA AML Requirements with Citadel365

Citadel365 serves as a central hub that enables all compliance activities to be managed in one place. With solutions such as customer onboarding, name screening, customer risk assessment, and case management, it supports firms in achieving strong governance, clear oversight and control.

Citadel365 helps connect customer information, compliance teams and regulatory rules in one place. As a comprehensive AML software, Citadel365 eliminates fragmented system usage and ensures consistency across KYC/AML checks, which solves poor management information, such as delays and missing data.

Moreover, Citadel365 replaces manual processes with automated workflows and helps record customer information and activities through effective audit trails, reducing documentation gaps and complying with FCA requirements.

FCA AML/CFT FAQs for Compliance Professionals

FCA expects regulated firms to adopt a risk-based approach with effective due diligence, ongoing monitoring, record-keeping, and staff training for AML/CFT compliance.

FCA assesses firms’ AML systems and controls effectiveness by reviewing whether controls are risk-based, implemented adequately and working in practice.

Ineffective AML controls, such as poor governance, inadequate customer due diligence, failure to recognise red flags, outdated system usage, and incomplete documentation and reporting, trigger FCA AML enforcement actions.

Technology such as Citadel automates due diligence processes, reduces false positives, and escalates investigations, which helps meet FCA AML standards.