Clifford Chance

In its annual AML and CTF supervision report, HM Treasury has reported on the work of the FCA and other supervisory bodies in relation to the supervision and enforcement of the Money Laundering Regulations in the UK. The report highlights the enforcement risk associated with supervisory visits.

HM Treasury's report was published on 6 August 2020 and covers the year 2018-2019. It contains some interesting statistics which emphasise that when the FCA looks to conduct a supervisory review of a firm's AML controls, the stakes are extremely high.

According to the report, in 2018/19 the FCA conducted 47 desk-based reviews of different firm's AML systems and controls and conducted 64 on-site visits.

Of the firms reviewed, none were found to be fully compliant with the regulations and the FCA took formal action on approximately 57% of the firms reviewed and approximately 52% of the firms visited.

Formal action can include appointing a skilled person or enforcement action leading to the imposition of financial penalties.

According to the report, frequent breaches identified in firms supervised by the FCA include: inadequate client risk assessments; ineffective application of enhanced due diligence, leading to poor identification and monitoring of high risk customers; inadequate AML policy procedures; and the lack, or inadequacy, of AML training for relevant staff.

The report notes also that currently, the FCA has 65 AML investigations open under FSMA and the Money Laundering Regulations 2007 and 2017 and that in 2018-19, the FCA made 5 referrals to criminal law enforcement for ML/TF related matters.

The report also quotes one of the recommendations from the recent FATF mutual evaluation of the UK, which was that "All supervisors should continue to ensure, in accordance with the increased trend for levying penalties, that proportionate, dissuasive and effective sanctions are applied for violations of AML/CTF and sanctions obligations".

Taken together, the above suggests that when subject to an inspection in this area via desk-based review or on-site visit (or perhaps a "virtual" visit) there is seemingly a more than 50% chance of being subject to formal action with an increasing risk of penalties being imposed. When the FCA comes knocking, firms therefore should prepare carefully and should treat the inspection and their preparation as anything but routine.