Financial Services, Sectors - Written by on Wednesday, December 5, 2012 13:45 - 0 Comments

FSA throws down gauntlet to Asset Management Industry on latest thematic review…

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Speaking in the last couple of weeks, Tracy McDermott (pictured) telegraphed the latest thematic review of the Financial Services Authority soon to be Financial Conduct Authority.  This extract below speaks for itself.

“…we are about to start a thematic review of how asset managers handle the risks of money laundering and bribery. Let me now give you the details. Perhaps this review is overdue: the asset management sector holds over £4 trillion in assets, with APCIMS members alone collectively managing assets of half a trillion pounds for 6 million clients. Clearly this is a huge industry, and the scope for damage should financial crime risks be mishandled is enormous.

London is an attractive destination for the world’s wealthy and their money – unfortunately including those whose wealth is illegitimate. I expect you, as UK-based wealth management professionals, to be developing your business by offering peerless service and unmatched expertise: not by accepting money without properly gauging its provenance.

We hope the findings of this review will be better than the disappointing findings of our 2011 review into banks handling of high risk situations. We were greatly concerned by the findings of that 2011 review, and Enforcement actions followed.  Since publication we have fined three banks with more to go. To remind you of our findings: too many of the banks we visited showed basic weaknesses in identifying high risk customers – PEPs and the like, undertaking proper due diligence and monitoring of their accounts. Of course most of these customers will be entirely legitimate, but not all of them are, and they are recognised as posing an increased risk which it is the job of the industry to manage properly.

We found over three quarters of the banks we visited failed to take adequate measures to establish the legitimacy of the source of wealth and sources of funds which would be used in the business relationship.

More than a third that we visited did not have effective measures to identify customers as PEPs.

Over half the banks we visited failed to apply meaningful enhanced due diligence measures in higher risk situations and therefore failed to identify or record adverse information about the customer or the customer’s beneficial owner.

Finally – and crucially, as it goes to the crux of what the financial crime regime was set up to do in the first place – we found some banks appeared unwilling to turn away, or exit, business relationships despite there appearing to be an unacceptable risk of handling the proceeds of crime. We published that review over a year ago and I hope you will have been able to digest its findings and apply its lessons to your own businesses.

Our imminent thematic review of asset managers will look at your systems and controls to counter money laundering, sanctions breaches, and bribery and corruption As well as building on the approach we used in our previous reviews, we will also consider issues that are specific to the asset management industry. We have taken a sample of 22 firms from across the investment management sector, aiming to capture the industry’s diversity. We plan to publish in the third quarter of next year. As with all our thematic reports, we will give examples of both good and poor practice that will give you and us a picture of what is happening across the sector, and help standards to be raised.”

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