At our recent lunch and learn session, we unpacked the FCA's Business Plan focusing on financial crime and fraud prevention. We continued the discussion in our webinar, where we were joined by ex-FCA insider, Katharine Leaman, financial crime consultant Raj Rajani and former Head of Global Financial Crime Risk Education and Culture Paul Coady.
The FCA's Business Plan for 2023/24 underscores the imperative of taking proactive steps to outpace criminal activities, fortify detection mechanisms, and uphold the interests of consumers and the broader financial system.
The FCA has highlighted three priorities in its 2023/24 business plan:
- Reducing and preventing serious harm
- Setting and testing higher standards
- Promoting competition and positive change
Using this as the foundation, we looked at navigating the financial crime regulatory landscape.
We considered the FCA's current focus on financial crime as well as shifting behaviour around financial crime:
- How does human behaviour impact effective financial crime compliance? Considering the human factor that comes into play when assessing the various compliance gaps.
- What is the definition of financial crime according to the FCA? Unpacking the FCA's definition of financial crime as any kind of criminal conduct relating to money or to financial services or markets, including any offence involving fraud, misconduct, misuse of information, handling the proceeds of crime and financing terrorism.
- Why is financial crime a priority for the FCA? Delving into the statistics around financial crime. Fraud accounts for just over 40% of crime in the UK, with 86% of all fraud going unreported. The UK Finance's Annual Fraud Report shows that consumers lost £1.2bn across all fraud types last year. Fraud is a complex type of crime which is difficult to spot and has resulted in a loss of 5% of annual revenue.
- Who will do the work of prevention and detection? Exploring who is responsible for preventing financial crime, first and foremost. The FCA expect all regulated firms to collaborate with them to reduce financial losses.
- How will the FCA ensure they will meet their own objectives? Investigating enhanced collaboration initiatives for a unified front against financial crime. The FCA has many partners in the UK and abroad to improve money laundering standards. They are committed to evolving and refining their regulatory framework and have also focused on improving their data sources and using their power to penalise companies for AML breaches.
Lessons from AML breaches
The key lessons from the most significant AML breaches include:
- Lack of understanding of what third-party systems can do
- Insufficient bespoke training
- A lack of ongoing monitoring with challenging questions
It was interesting to find during the webinar discussion and through poll questions that our compliance community prioritises fraud as the area of financial crime that needs the most attention.
Our webinar audience could select multiple answers, as shown in the poll results below, with sanctions and data security being the second and third top concerns respectively.
We also asked our audience how confident they are about changing financial crime resources at short notice and updating their teams accordingly. Here is the response:
It was encouraging to see that most of our audience feels somewhat confident. With the ever-changing regulatory landscape, it is important to be agile and adaptable.
Some of the main takeaway points focus on the direction of compliance and changing the behaviour of employees. The takeaways include the following:
- Reassessment of risks, policies and procedures is essential. Continuous reviewing and monitoring will ensure prevention and detection are company-specific
- Be aware of and understand compliant behaviour. No matter how simple a message is to understand, people may still choose the wrong course of action
- Tackle the middle ground with effective training. Between right and wrong behaviour, there is cognitive dissonance, which can lead to people rationalising misconduct. This is the area in which we have the best opportunity of influencing human behaviour
- It is essential to know your audience. Different business lines, regions and locations need to be taken into account when developing a compliance programme
- Training programmes need to consider different risk profiles of individuals in a business.
- Compliance training needs to be up-to-date. Incorporate new policies, procedures, technology sources, systems, processes, red flags and reporting processes
- Need to have clear and accessible documentation, records and material to refer back to prove any misconduct
- Resonate with people and show that financial crime is not victimless. Help them understand the consequences from the top so that this can filter down to the rest of the company
We want to invite our community of financial professionals to register for our Market Abuse Lunch & Learn session on 23 November, where we will focus on safeguarding market integrity through the prevention and detection of market abuse.
Our industry experts will unpack the FCA's approach to tackling insider trading, unauthorised disclosure of inside information, market manipulation, and other forms of market abuse. This will make for an insightful session on strengthening your organisation's ability to prevent, detect, and combat market abuse effectively. If you have any questions, please get in touch.
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