Firms reminded of their Anti-Money Laundering responsibilities

In exercising these responsibilities the FSA would expect individual firms to consider the risks posed by existing customers who have not been properly identified and to put in place appropriate measures to mitigate these risks. This might include carrying out a review similar to that being undertaken by the six largest retail banks and others.

The FSA commissioned an independent cost benefit analysis , by PricewaterhouseCoopers, into whether it should introduce a mandatory industry-wide requirement.

Carol Sergeant, Managing Director, said:

"We considered whether to introduce new industry-wide rules on the identification of existing customers. We needed to be satisfied that any new general regulatory obligation would be proportionate to the benefits and would not be detrimental to the industrys competitiveness, nor unduly inconvenience customers. This was a difficult decision but given the findings, across the whole of the regulated sector, of the cost-benefit analysis, we could not be satisfied that a mandatory approach would be justified. "

"The senior management of each firm must satisfy itself that its systems are appropriate for dealing with money-laundering risks arising if they have not identified existing customers adequately. For a number of firms the right approach will be for them to conduct a risk-based review of all or some of their existing customers. We fully support proactive risk-based action by firms that have done this, including the large UK retail banks and many others."

"We take this opportunity to stress to all regulated firms that the need to identify your customer is an existing legal and regulatory obligation and considered by law enforcement agencies and the FSA to be an essential element of anti-money laundering controls."

"We are grateful for the co-operation of the financial services industry and law enforcement in considering this issue. The decision shows that we take the principles of good regulation seriously and that cost-benefit analysis plays an important role in our policy making."

Notes for editors

1. Financial services providers are required to verify the identity of new customers under both the Money Laundering Regulations 1993 and the FSA Money Laundering Sourcebook. Some customers may never have been identified either because they became customers before the Regulations came into force on 1 April 1994 or because a firm did not comply with the requirements in the period before the FSA took over its responsibilities in December 2001.

2. After lengthy discussions as a group and with the FSA, on 15 July 2002 six banks (Abbey National, Barclays, HBOS, HSBC, Lloyds TSB and RBS) announced that they would reconfirm the identity of their existing customers using a risk-based approach designed to minimise disruption for customers.

3. Separately, also on 15 July 2002, the FSA indicated that they would consider whether it would be proportionate and effective to introduce new rules or guidance requiring all firms subject to the requirements in the Money Laundering Sourcebook to carry out a review of their existing customers to ensure that they have been properly identified or that the risk of money laundering is minimal.

4. Since then the FSA has been holding discussions with the industry to consider how a risk-based review might be rolled out to all regulated firms.

5. In February 2003 the FSA appointed Pricewaterhouse Coopers LLP to carry out a cost benefit analysis on its behalf. Their full report is available via www.fsa.gov.uk/pubs/other/ml_cost-benefit.pdf

6. The CBA considered two policy options for identification of existing customers. Option A a structured risk-based review by all firms with a fixed completion date and Option B a less prescriptive approach based on general guidance.

7. As part of our work on Money Laundering, we will be publishing a Discussion Paper on Know Your Customer and Monitoring in late July/early August.

8. The FSA regulates the financial services industry and has four regulatory objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the appropriate degree of protection of consumers; and fighting financial crime.

9. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.