FCA
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 the UK regulator for financial services firms. For anti-money laundering, it supervises banks, investment firms, payment and e-money firms, and cryptoasset businesses under the UK Money Laundering Regulations 2017. It checks that they identify customers, assess risk, monitor activity and report suspicion.
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 Regulations: The Key UK Rules
Firms regulated or supervised by the FCA must comply with the laws, regulations and FCA Handbook requirements applicable to their activities. The main UK AML framework includes:
| Law, rule or guidance | What it requires or covers |
|---|---|
| Money Laundering Regulations 2017 (MLRs) | Risk assessments, AML policies and controls, customer due diligence (CDD), enhanced due diligence (EDD), ongoing monitoring and record keeping. |
| Proceeds of Crime Act 2002 (POCA) | Money laundering offences and statutory disclosure obligations relating to suspected money laundering, including reporting through the appropriate channels to the National Crime Agency (NCA). |
| Terrorism Act 2000 | Terrorist financing offences and disclosure obligations relating to knowledge or suspicion of terrorist property. |
| FCA Handbook – SYSC 6.3 | Requires firms within its scope to maintain proportionate systems and controls to identify, assess, monitor and manage money laundering risk. It also requires the appointment of an MLRO, subject to the specified sole-trader exception. |
| FCA Financial Crime Guide (FCG) | FCA guidance containing practical examples of good and poor practice to help firms develop effective financial crime systems and controls. |
| JMLSG Guidance | HM Treasury-approved industry guidance for the UK financial sector. The FCA has regard to relevant provisions when assessing firms’ compliance with applicable requirements. |
These requirements work together to establish the UK’s AML compliance framework. Firms should consider their regulatory status, business activities and risk exposure when determining which requirements apply to them.
FCA KYC Requirements for Regulated Firms
Under the Money Laundering Regulations 2017 (MLRs), firms subject to these requirements must apply customer due diligence (CDD) measures when establishing business relationships and in other specified circumstances. These measures include:
Identify and verify customers: Establish the customer’s identity and verify it using reliable, independent documents or information. Verification should normally be completed before establishing a business relationship, subject to the limited exceptions permitted under the Regulations.
Identify beneficial owners: For corporate customers and other relevant legal arrangements, identify beneficial owners, take reasonable measures to verify their identities and understand the ownership and control structure.
Understand the business relationship: Assess and, where appropriate, obtain information about the purpose and intended nature of the business relationship or transaction.
Apply enhanced due diligence (EDD): Apply additional checks and enhanced ongoing monitoring in circumstances requiring EDD, including identified high-risk cases, relationships involving politically exposed persons (PEPs) and relevant relationships or transactions involving high-risk third countries.
Conduct ongoing monitoring: Scrutinise transactions throughout the business relationship to ensure they are consistent with the firm’s knowledge of the customer and their risk profile. Review existing records and keep customer due diligence information up to date.
Maintain CDD records: Retain the required customer due diligence documents, information and supporting transaction records for at least five years after the business relationship ends. For occasional transactions, the five-year period generally begins when the transaction is completed, subject to applicable exceptions and record-retention requirements.
The extent of CDD measures should reflect the firm’s business-wide risk assessment and the risks associated with each customer and business relationship. Firms must apply proportionate measures while meeting the minimum requirements of the Money Laundering Regulations 2017.
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.
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.
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 Citadel365 automates due diligence processes, reduces false positives, and escalates investigations, which helps meet FCA AML standards.