Clari5 Market Insights
United Kingdom
Financial Conduct Authority
FCA Strategy 2022-25
UK’s FCA Sets Out Guidelines for Financial Institutions for Fraud and Money Laundering
By when must Financial Institutions (FIs) comply with the mandate?
FIs must meet the FCA’s guidelines with immediate effect.
Why has FCA issued the new guidelines?
Economic crime poses a significant threat to the national security and the prosperity of the UK. The Government reaffirms the significant impact that economic crime and illicit finance have across many national security threats. An estimated 1 in 15 adults were victims of fraud in the year ending September 2022. Money laundering underpins organized crime including the drugs trade and human trafficking, and Russia’s invasion of Ukraine highlighted the need to do more to tackle kleptocratic regimes and sanctions evasion. However, the threat from economic crime continues to grow. Fraud accounted for an estimated 41% of all crime experienced by adults in England and Wales in the year ending September 2022. The National Crime Agency assesses it is a realistic possibility that over £100 billion is laundered every year through the UK or through UK corporate structures using high end money Laundering methods. This plan is underpinned by significant investment of £400 million from financial year 2022-23 to financial year 2024-25. This funding represents £200 million of government investment and £200 million from the Economic Crime (Anti-Money Laundering) Levy, which provides sustainable, long-term funding to combat economic crime.
The UK Government released Economic Crime Plan 2 2023- 2026 which aims to:
- Cut fraud against the individual and business
- Modernize the response and reduce the impact of fraud against the public sector
- Reduce money laundering and recover more criminal assets
Following which, the Financial Conduct Authority (FCA) released its FCA Strategy 2022-25 which is a three-year Strategy. Among its 3 commitment areas, are:
- Focus 1: Reducing and preventing serious harm
- Focus 2: Setting and testing higher standards
- Focus 3: Promoting competition and positive change
Focus Area 1 talks about Reducing and preventing financial crime.
Highlights of the guidelines
Every year FCA releases its business plan to complete the focus areas of the FCA strategy. As per the Business Plan 2023-24, one of the primary areas of focus is the reduction and prevention of financial crime. This focus combines the FCA’s aim to reduce scams and frauds for retail consumers, as well as its aim to reduce the incidence of money laundering through firms.
Money Laundering and Terrorist Financing
Among many of the good practices mentioned under this section, some of them are:
- Firms must put in place systems and controls to identify, assess, monitor and manage money laundering risk. These systems and controls must be comprehensive and proportionate to the nature, scale and complexity of a firm’s activities.
- Firms must regularly review their risk assessment to ensure it remains current.
- Consideration of money laundering risk associated with individual business relationships takes account of factors such as: company structures, political connections, country risk, the customer’s or beneficial owner’s reputation, source of wealth, source of funds, expected account activity, sector risk, and involvement in public contracts.
- Firms must identify their customers and, where applicable, their beneficial owners, and then verify their identities. Firms must also understand the purpose and intended nature of the customer’s relationship with the firm and collect information about the customer and, where relevant, beneficial owner.
- A firm should use electronic verification checks or PEPs.
- A large retail firm can complement its other efforts to spot potential money laundering by using an automated system to monitor transactions consisting of rules which are continuously updated to reflect new trends.
- The firm must update CDD information and reassess risks associated with business relationships where material changes are seen in the customer profile.
- Establishing the source of funds and the source of wealth can be useful for ongoing monitoring and due diligence purposes because it can help firms ascertain whether the level and type of transaction is consistent with the firm’s knowledge of the customer.
- In higher risk situations, firms must apply Enhanced Due Diligence and Ongoing Monitoring for scenarios like – Correspondent relationships, Politically Exposed Persons (PEPs), family members and known close associates of a PEP, Business relationships or a ‘relevant transaction’ where either party is established in a high risk third country.
Fraud
Among many of the good practices mentioned under this section, some of them are:
- The firm must take a view on what areas of the firm are most vulnerable to fraudsters
- Set controls and adapt to new fraud threats
- Engage with relevant cross industry efforts to combat fraud – for internal and external fraud
- Set fraud response plans and investigation procedures
- Maintain anti-fraud good practices
- Guard against insider fraud
- Perform Enhanced Due Diligence for high-risk customers
- Set fraud practices for mortgage fraud – lenders and intermediaries, enforcement action against mortgage brokers
- Set fraud practices for investment fraud, for e.g., bank to have transaction monitoring rules designed to detect specific types of investment fraud
How Clari5 helps UK’s FIs quickly comply with FCA’s guidelines
Highlights
Advantages
Highlights
- Enterprise-wide, real-time automated fraud monitoring / detection and prevention for all transactions across products, channels, branches, accounts, internal and external risks
- End to end AML compliance solution that can be easily integrated with Clari5 Fraud Management System along with our pre-packaged AML scenarios, various parameters like Threshold & Time Duration can be configured based on the business policies. These scenarios cover recommendations made by various regulatory agencies
- Clari5 includes a real-time federated anti-fraud network enabling member FIs to quickly identify new types of fraud activities
- Real-time Customer Due Diligence module and Enhanced Due Diligence module which can be integrated to any type of watchlist, PEP list and has capabilities to screen any parameter or entity
- Enables profile-based risk assessments and periodic reassessments of onboarded customers and entities
- Scenario Authoring Tool to configure new and latest scenarios and modify existing scenarios with multiple variables to combat emerging money laundering patterns and risks, however sophisticated
- Real-time transaction processing systems (Core Banking and Remittance Systems) to correlate and detect any suspicious money laundering schemes which also generates a case for investigation
- Supports regulatory reporting for timely filing along with integrated role-based reports and dashboards for any investigator or supervisor
Advantages
- Unified FMS at FI level covering both AML and fraud risk mitigation across digital and physical channels, across all products and services
- Real-time decisions at scale enables true real-time prevention for in-flight transactions, constructs 360º view of the customer, in real-time, powered by customer behavioral profiling as base, based on transaction history
- Extensive library of rule-based scenarios covering all products & channels reflecting years of real-life experience across 25+ geographies; authoring tool to modify / add to this library
- Clari5’s web-based Scenario Authoring Tool configures new scenarios as / when required, without any coding or effort from the IT team
- Parallel use of AI / ML tools and graph analytics to extract new patterns, deploy them for better detection rates with lower false positives
- Entity Link Analysis feature helps expose customer / account associations and organized money laundering and fraud crime rings
- Case Management System to shrink analyst time on false positive investigation, using AI / ML driven models on past resolution data; workflow-driven investigation in a configurable centralized or decentralized manner
- Quicker implementation because of prepackaged scenarios and built-in interfaces for integration
- Low-cost commodity hardware infrastructure leading to reduced TCO