Retail banks have been issued a warning by the Financial Conduct Authority (FCA) about continuing weaknesses and failings surrounding their financial crime controls.

The letter, which was penned by David Geale, director of Retail Banking & Payments Supervision for the FCA, and sent to banking industry chiefs across the UK, was issued in May and made public via the FCA’s website hub on 29th June.

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It outlined the key issues and weaknesses surrounding retail banks’ financial crime controls and requested that each firm complete a gap analysis of each of the identified weaknesses and take prompt and reasonable steps to resolve them by 17th September 2021.

The letter warned that the regulator is likely to request a demonstration of the steps taken after this date and, if deemed inadequate, the FCA may consider appropriate regulatory action in order to manage the financial crime risk posed.

Common weaknesses

The common control weaknesses identified and cited were in the following areas: Governance and Oversight; Risk Assessments; Due Diligence; Transaction Monitoring and Suspicious Activity Reporting (SARS).

It was highlighted that, in several cases, persistent failings have resulted in intervention, such as requiring firms to appoint a skilled person to carry out a detailed review, business restrictions and, in the most severe cases, enforcement action.

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Dealing with “a high-risk sector for illicit financial crime activity”

Wayne Johnson, CEO of Encompass Corporation, commented:

“Retail banking is a high-risk sector for illicit financial crime activity, particularly in today’s climate, where the increase in both online banking and remote working has made money laundering even harder to detect.

“The banks, therefore, must work proactively and collaboratively with the FCA and other regulatory bodies to ensure they are onboarding customers, reporting information and complying accurately with current existing regulations and industry recommendations.

“Combatting the rising financial crime threat demands said banks to equip themselves with sophisticated regulation technology that automates compliance processes – making them more efficient, secure and cost effective.

“Implementing or upgrading software and bolstering processes will also be key to demonstrating to the FCA that they are taking the threat seriously and executing the necessary steps to help address the evident weaknesses in the fight against financial crime.”