At a glance
- The FCA has recently fined businesses for failing to comply with money laundering rules.
- To avoid sanctions businesses must put measures in place to combat money laundering.
- We spoke to experts about the steps they need to take.
What is the FCA doing?
Money laundering – disguising illegal funds as legitimate income – was the most common fraud type by value in the last six months according to KPMG UK’s Fraud Barometer, with nine cases heard in UK Crown Courts collectively worth a staggering £128.2 million so far this year.
A continuing thorn in the side of regulators, money laundering has a profound effect on both the economy and wider society, with the Law Commission estimating that the practice costs each UK household £255 a year.
The FCA is responding by intensifying enforcement of anti-money laundering (AML) measures. It has just handed Metro Bank a fine for £16.6 million for failing to monitor money laundering risks that impacted over 60 million transactions valued at more than £51 billion.
The highest-profile recent case, however, was the £29 million fine to Starling Bank for financial crime systems and controls failings. Fast-growing startup Starling Bank’s AML prevention measures failed to keep pace with its rapid expansion and although it had automated screening systems, they were only partially checking the list of sanctioned individuals and leaving gaps in its compliance processes.
Sanctions like this can be detrimental to a business’s financial stability as well as having a serious reputational impact. What can businesses do to protect themselves?
1. Implement agile AML systems that flex as you grow
Taking a proactive approach to implementing AML controls that adapt to evolving risks is essential, even if the business grows rapidly.
Bion Behdin, Co-Founder of First AML, says: “When businesses grow really quickly, it’s important to have correct processes and procedures in place, especially in highly regulated industries like banking.”
This was the case for Starling, he says, which grew quickly but didn’t have strong enough processes in place to mitigate the risk associated with client screening.
Behdin says small businesses should futureproof their AML measures as they grow.
“They need to ask themselves, ‘does this work for us if we were twice the size?’” he says.
Setting up scalable compliance is key to avoiding risks and fines. There is an important role for accountants to always think one step ahead, ensuring AML processes are integrated with financial operations and monitoring transaction data for anomalies.
Behdin emphasises that AML controls are essential for safeguarding our financial system. Criminals using financial institutions and professional services to launder their illicit funds often reinvest in further illegal activities, which has a “profound impact on society.”
2. Invest in the right expertise in to set you up properly
AML controls are essential defences in a financial system that deters crime, and businesses can benefit hugely by getting the right advice to optimise their compliance measures.
Derek Patterson, Partner at Forensic Risk Alliance, says the FCA has signalled previously that it will start to take action against firms with weak AML procedures: “Size is no excuse, and smaller companies should prioritise hiring experts who can fortify their organisation’s defences and play their part in upholding the integrity of the global financial system.”
An important step for small businesses is to review their procedures and implement controls to avoid sanctions. However, Patterson says smaller and startup businesses can struggle to attract the right expertise to build strong, effective AML systems.
Skilled accountants can provide essential knowledge of financial crime and regulations, helping businesses create effective AML frameworks. Their expertise can help small businesses to spot suspicious activity, helping to reduce risks and stay compliant with the regulations.
3. Don’t overlook crucial verification measures
For Inna Lyubashevskaya, Chief Customer Officer at Sumsub, Starling’s fine highlights the recurring issue of cutting corners on verification: “Not conducting proper verification checks is like instinctively locking your front door but still leaving windows wide open for criminals to sneak in.”
Robust anti-fraud measures are crucial not only for safeguarding operations, but also for protecting customers from financial losses and identity theft. Verification measures like proof of address (PoA) and implementing effective transaction monitoring are vital to avoid the illicit bypassing of systems, especially for the regulated industries.
Lyubashevskaya adds that consequences like this fine should be a “wake-up call”, reiterating that cutting corners on financial crime prevention not only opens doors to fraud, but also harms reputation and weakens trust.
Artificial Intelligence (AI) will increasingly have a place in AML controls. “There is no ‘magic tool’ that can solve all fraud; however, implementing AI-powered multi-layered protection at all stages of the user journey will undoubtedly help to eliminate threats,” she says.
Accountants and small businesses must work together to ensure they understand how to comply with the FCA’s rules and avoid sanctions. Optimising these measures is vital for businesses to protect both their financial health and reputation. By contributing to anti-money laundering efforts, businesses can help make for a safer financial ecosystem for all.
