The FSA reminds firms to guard against money laundering

"Recent developments have prompted many firms to undertake reviews of their procedures for knowing their customers and understanding the origin and uses of funds placed with them. In many cases this will have involved re-assessing lists of counterparties. Management, including those of non-banks, who have not undertaken such reviews should do so as a matter of urgency. Such reviews should establish not only that procedures exist and are equal to the task but, crucially, that all relevant staff understand the need for, and implement them, fully. A culture within an institution which promotes such understanding is the key to successful implementation."

"The FSA takes very seriously the need for regulated firms to have rigorous controls to prevent their use in money laundering and in dealing with the proceeds of crime more generally. Individual members of staff, firms and regulators alike have a statutory duty to notify the law enforcement authorities of any suspicions they may have that money laundering is taking place. The new legislation currently in Parliament will increase the FSAs focus on these issues by placing a statutory obligation on us to seek to reduce the extent to which it is possible for the business of a regulated person to be used for purposes connected with financial crime."

Howard Davies went on to identify three important points that financial services firms should always take account of in their day-to-day activities:

Financial institutions need to carry out proper due diligence on the counterparties and clients they deal with and the provenance and use of funds that they process. This is not always easy because doubtful funds may often have passed through several intermediate stages, with the express purpose of disguising their origin, before major firms have any contact with them. This does not detract from the need to have rigorous processes that are widely understood and implemented to minimise any risk of the dealing even unwittingly, with the proceeds of criminal activity. All these are matters of both law and of self-protection against credit, reputational and other risks.

The current preoccupation with Russia should not obscure the fact that doubtful funds can originate literally anywhere in the world. This means that proper procedures need to be followed when dealing with all counterparties, particularly new ones.

Money laundering, and the need for proper controls to prevent, it is not confined to banks. Virtually any financial services institution can be used as a vehicle for money laundering. And the more control conscious banks become, the more other kinds of financial institutions will be targeted by unscrupulous transactors. This is why the law requires that non-banks including for example, fund management companies operate procedures that are as rigorous as those we expect to see in banks.

Notes for editors

The Government announced on 20 May 1997 that it would create a single regulator for all financial firms and markets and the FSA was formally launched on 28 October 1997. The FSA has assumed responsibility for the supervision of banks and supplies regulatory and other services under contract to the three Self-Regulating Organisations (SROs), the Building Societies Commission, the Friendly Societies Commission, HM Treasurys Insurance Directorate and the Registry of Friendly Societies. These arrangements will continue until the new legislation comes into force.

The text from the speech is available on the FSAs website: http://www.fsa.gov.uk/speeches/1999/october/15101999.pdf