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This year’s belated Business Plan sets out the FCA’s vision to “transform to face the future”. In it are clear signs the regulator is stepping up activity to protect against financial crime. Greater use of data, a wider sectoral focus – on cryptocurrency for example – and a commitment to working with partners to increase enforcement are all themes which are worth scrutiny. If you work in financial crime there’s plenty to get your head around this summer.
The annual business plan, usually due in April, was published with a relative lack of fanfare on the 15th of July. The theme of the plan, ahead of the usual detail on sectoral priorities is Change. In his introduction Nikhil Rathi looks at the “profound forces” transforming financial services and the three “distinct changes” the regulator is adopting – to be more innovative, more assertive and more adaptive.
The FCA recognise that the volume and variety of financial crime and fraudulent activity in the UK is increasing. In its plan the regulator is at great pains to show how serious it is about protecting consumers in the face of this trend. At the same time, it is looking to drive and encourage innovation and cross-border collaboration to mitigate the spread of financial crime. In each area of change discussed, there are elements which could necessitate revisiting the controls you have in place.
1. More innovative
“Taking advantage of data and technology to increase our ability to act decisively in the interests of consumers…we need to find and stop harm faster”. The FCA are investing more than £120m over 3 years to support their data strategy.
From a financial crime perspective, it is likely we’ll see even more focus on areas such as data returns and how they can be best used to inform the FCA’s supervisory strategy. MLROs may want to consider recent REP-CRIM submissions to inform their compliance monitoring plans for the remainder of 2021.
Interestingly, the plan goes on to say, ‘We will use data and intelligence to ask questions where we suspect misconduct – even where we are not the principal regulator.’ This indicates that the regulator would like to see more intelligence sharing. An example of this could be the art market participants who have to follow the EU’s Fifth Money Laundering Directive (5MLD) but are subject to regulatory supervision, oversight and enforcement by HMRC.
2. More assertive
“Testing the limits of our own powers and engaging with partners to make sure they bring their powers to bear”.
This is a strong signal that we will see an even greater up-tick on early referrals to enforcement and successful fines and prosecutions from the regulator. When the FCA speaks of “engaging with partners” it refers to both those in the UK and internationally. It specifically mentions issues such as fraud as requiring local and international responses given their wide-reaching nature and implications.
3. More adaptive
“Constantly learning and always adjusting our approach as consumer choices, markets, services and products evolve”.
We can expect to see more supervisory focus on less traditional financial institutions and platforms, such as cryptocurrencies. The FCA says it is highly conscious of the potential use of crypto assets in financial crime, and notes that their highly volatile nature brings significant risks to consumers and market integrity. The estimate of UK consumers holding crypto assets is c 2.3 million, posing potentially significant and widespread consumer impacts.
This is also indicative of a greater regulatory understanding and focus on how financial institutions utilise technology to enable more effective and smarter controls, for example, use of AI and social network analysis in transaction monitoring.
How Bovill can help
Bovill sits on the FCA’s Skilled Person Panel for Financial Crime and several of our team have worked for the FCA. Our specialist fraud and financial crime team can advise you on what the FCA’s plans mean for your business, utilising their knowledge of financial crime and regulatory expertise.