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Financial crimes include fraud, laundering the proceeds of crime, the finance of terrorism, bribery and corruption and the abuse of financial markets.

As well as meeting FCA requirements, firms will have wider obligations, for example, Proceeds of Crime Act 2002, Bribery Act 2010 and the Terrorism Act 2000.

How might your firm be affected?

There are number of ways that smaller businesses could be affected by Financial Crime, for example

  • A criminal using your firm’s services to disguise the source of illicit funds;
  • A customer defrauding your firm;
  • A customer being defrauded by a third party as a result of your firm’s actions (by, as example, unintentionally allowing the customers details to be accesses by a third party);
  • Helping a customer, whether intentionally or not, to defraud a third party such as HM Revenue and Customs; or
  • A staff member defrauding your firm.

Fraud

Fraud offences can affect both firms and individuals. There needs to be:

  • Intent to make a gain or cause someone else to make a loss; and
  • The existence of certain behaviours, such as making a misrepresentation, failing to disclose information or misusing your position.

Examples of fraud include:

  • Advising a customer to take out an insurance policy that you know is unsuitable;
  • Using information supplied by a customer in your own interest, rather than that of the customer;
  • Misappropriation of client money or money held under risk transfer agreements;
  • Failure to pass on premiums, refunds or claims;
  • Falsifying customer details to obtain insurance business that would otherwise be turned down or be more expensive;
  • Issuing false cover notes or false certificates of insurance;
  • Individuals, whether they be clients or third parties, using your firm to make false insurance claims; and
  • Colluding with a customer to make false claims.

If you suspect fraud you should contact the FCA Contact centre to discuss it further. You will need to supply the following information:

  • the name of the firm;
  • details of any individuals involved;
  • details and evidence of the suspected and/or proven fraud or financial crime;
  • the names of the customers involved; and
  • a summary of any investigation you have made.

What you need to do

The FCA expects firms to have risk management systems and controls in place to address the risk of financial crime. The Financial Crime Guide was updated in April 2015 and includes a section on senior management’s responsibility to ensure they fully understand the risks facing them in relation to financial crime and also allow for the subsequent provision of effective systems and controls.

Firms must:

  • Carry out an assessment of financial crimes risks your firm faces;
  • Be able to demonstrate that risk assessment was systematic and not a ”one-off” exercise; and
  • Ensure that senior managers understand the identified risks and take appropriate action to mitigate them.

A financial crime checklist is included in the template section at the end of this chapter (SYSC Template 14).

1. Risk Assessment

A firm’s exposure to financial crime risks is dependent on a number of factors e.g. the products and services it offers, the complexity and volume of transactions or perhaps the distribution channels it uses to service its customers. A business-wide risk assessment should be comprehensive and consider a wide range of factors in order to allow the firm to target and address the higher risk areas. Firms should regularly review both their business-wide and individual risk assessments to ensure they remain current. Consider:

a) What are the main financial crime risks to the business?
b) How does the firm seek to understand the financial crime risks it faces?
c) What systems are in place to identify, record and adapt to new or emerging financial crime risks?

For further information on risk assessment and management please see section 2.4 above.

In general terms, responsibility for the oversight of financial crime risks must be assigned to a senior and experienced member of the management team and addressed in a coordinated manner across the business to ensure proportionate controls are in place. The system in place within the business should be regularly assessed and compliance with standards monitored on a regular basis.

2. Policies and Procedures

Firms need to underpin this approach with clear policies and procedures designed to mitigate the risks of financial crime. This includes:

a) ensuring that there is clear documentation of the firm’s approach to complying with its legal and regulatory requirements in relation to financial crime
b) Identification and documentation of the associated risks and mitigating actions
c) Regular review of the policies and procedures in place
d) Regular monitoring of the effectiveness of policies, procedures, systems and controls in place and adapting them as appropriate

3. Management Information

Management Information should provide senior management with sufficient information to understand the financial crime risks to which their firm is exposed and also provide some oversight as to the effectiveness of controls. MI may come from a number of sources such as customer facing staff, the compliance department or an internal audit team and may include:

  • An overview of the financial crime risks to which the firm is exposed as well as new and emerging risks and any subsequent changes to the firm’s risk assessment
  • Legal and regulatory developments and the subsequent impact on the firm’s approach
  • An overview of the effectiveness of the firm’s financial crime systems and controls
  • An overview of staff expenses, gifts and hospitality and charitable donations, including claims that were rejected
  • Where relevant, information about individual business relationships, in particular those that are high risk
  • The number and nature of business relationships that were terminated due to financial crime concerns
  • Details of any true sanction hits, and
  • Information about suspicious activity reports considered or submitted, where this is relevant.