FCA Warns Corporate Finance Firms Falling Short on Anti-Money Laundering Controls

Key Takeaways

• Widespread Non-Compliance: The FCA found that roughly two-thirds of surveyed corporate finance firms may not meet requirements under the UK’s Money Laundering Regulations.
• Missing Risk Assessments: 11% of firms lacked a documented business-wide risk assessment, and 10% failed to retain customer due diligence records.
• Weak Oversight of Representatives: 29% of principal firms did not assess financial crime risks for their appointed representatives, and 6% were not monitoring their compliance.
• Good Practice Exists: 97% of firms reported regularly sharing financial crime updates with senior management, and some were found to be actively updating their risk frameworks.
• Regulatory Follow-Up: The FCA is writing to potentially non-compliant firms and will use survey data to guide supervision and interventions under its five-year financial crime strategy.

Deep Dive

The UK’s financial watchdog has warned that many corporate finance firms may be falling short of anti-money laundering rules, following a new survey that revealed widespread weaknesses in financial crime controls across the sector.

According to the Financial Conduct Authority (FCA), around two-thirds of the corporate finance firms it surveyed may not be fully compliant with the UK’s Money Laundering Regulations. The regulator said these shortcomings leave firms, and the broader market, vulnerable to money laundering, fraud, and other forms of financial crime.

Corporate finance firms help businesses raise capital by connecting them with investors and lenders, making their role essential to the health and integrity of the UK economy. But the FCA’s findings suggest that many firms have not kept pace with regulatory expectations.

The survey, which covered over 300 firms not required to submit financial crime data returns, found that 11% had no documented business-wide risk assessment, a key requirement under the Money Laundering Regulations. Another 10% said they did not retain evidence of customer due diligence, while 29% of principal firms, those responsible for overseeing appointed representatives, failed to conduct financial crime risk assessments for those representatives.

The FCA also found that 6% of principal firms were not monitoring their appointed representatives’ compliance with financial crime rules, nor conducting on-site visits or audits to test their controls.

While the regulator noted some positive practices—such as firms regularly updating their risk assessments and using management information to strengthen oversight—Andrea Bowe, Director of the FCA’s Specialist Directorate, said too many firms were still lagging behind.

“Corporate finance firms play a vital role in the UK’s capital markets. Their exposure to money laundering risks means it is essential that they have strong, proactive controls in place,” Bowe said. “While some firms may be meeting expectations, many may be falling short of minimum regulatory requirements.”

The FCA said it is writing to potentially non-compliant firms to outline the improvements they need to make. It will also use the survey data to inform future supervision and intervene where necessary as part of its broader strategy to combat financial crime over the next five years.

The regulator reminded firms that they must have documented business-wide and customer risk assessments and maintain records of customer due diligence and ongoing monitoring. It also underscored that close client relationships cannot substitute for formal risk documentation and that principal firms must actively oversee their appointed representatives’ compliance.

The survey results, based on responses from 270 firms, offer a snapshot of the sector’s anti-financial crime posture. While the FCA stopped short of calling it a formal review, it said the findings provide valuable insight into how firms are managing, or in some cases failing to manage, the risks of financial crime. As the regulator steps up its scrutiny, corporate finance firms can expect growing pressure to shore up their frameworks, demonstrate compliance, and ensure that financial crime oversight keeps pace with the evolving risks across the UK’s capital markets.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.