Dear CEO | Release Date: 5th March 2024
To read a longer summary of this Dear CEO letter, click here.
To access the original FCA document, click here.
Short Summary
The Financial Conduct Authority (FCA) has issued a “Dear CEO Letter” addressing the urgent need for financial institutions, particularly Annex 1 firms, to bolster their anti-money laundering (AML) frameworks. The FCA emphasizes the critical role of firms in combating financial crimes including money laundering, terrorist financing, and proliferation financing. Firms are urged to ensure their policies, controls, and procedures are robust and up-to-date to prevent such crimes.
Annex 1 firms, as defined in the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (the MLRs), include various business models providing services in the UK but are neither authorised under the Financial Services and Markets Act 2000 nor classified as money service businesses. The FCA’s supervision includes rigorous testing of these firms’ AML policies and procedures.
The letter identifies common control failings in areas such as business models, risk assessments, due diligence, ongoing monitoring, and governance. Key issues include discrepancies between registered and actual business activities, weaknesses in business-wide and customer risk assessments, vague or outdated policies leading to ambiguity in staff actions, and insufficient resources for financial crime teams.
Firms are required to conduct a gap analysis within six months of receiving the letter, addressing these weaknesses. The analysis should be comprehensive, with findings shared internally and acted upon. The FCA expects firms to take immediate and reasonable steps to close any identified gaps. Future engagements with the FCA will likely include requests for evidence of actions taken in response to these findings. Inadequate responses may result in regulatory interventions.
In summary, firms are urged to rigorously review and update their AML frameworks, ensuring compliance with the MLRs and effective management of financial crime risks. This involves a thorough gap analysis, immediate remedial actions, and a commitment to maintaining stringent AML controls.