Tackling the risk of money laundering in the financial services industry

In publishing the results of the FSAs Money Laundering Theme: tackling our new responsibilities Carol Sergeant, Managing Director of the FSA, said:

"Our aim is to work with the industry to help those firms that are behind the game step up a class in terms of preventing the risk of money laundering crystallising. Firms need to be aware though that money laundering failures may result in formal regulatory enforcement or criminal prosecution.

"From 1 December, the FSA will have an explicit objective to reduce the extent to which the firms we regulate can be used in connection with financial crime, including money laundering. This will be a demanding new responsibility for us. The report which we are publishing today is an important step in helping us achieve this objective.

"The FSA continues to work closely with the National Criminal Intelligence Service, with which it has today signed a Partnership Agreement in the fight against money laundering. The FSA will also continue to work actively with others both in the UK and internationally to achieve a reduction in financial crime.

"The industry has a key role to play by making sure its own house is in order and in sharing information and best practice. We will maintain an active dialogue with the Joint Money Laundering Steering Group and firms and their trade associations more generally."

In the theme, the FSA identifies 6 'clusters' of activities which are particularly vulnerable to money laundering and the FSA will therefore focus most on these:

• International banking and high risk jurisdictions. This sector was highlighted by the FSAs investigation into banks which had handled money linked to General Abacha. The focus will be on banks with clients from non-FATF (Financial Action Task Force) markets.

• Domestic banking. This cluster will focus on the way in which mass market retail systems act to prevent financial crime. This will focus in particular on the money laundering risks of large volumes of smaller-scale cash deposits.

• Independent Financial Advisers (IFAs) and offshore funds. There are perceived gaps in understanding within this sector of money laundering risks associated with cash purchases of offshore products.

• Online stockbroking. Online brokers are potentially vulnerable to enabling layering of funds if adequate controls are not in place.

• Spread betting. This sector provides an alternative channel for money laundering. A lack of awareness increases this sectors vulnerability.

• Credit unions. The perceived gaps in training and awareness make this sector vulnerable to the risk of money laundering.

Oliver Page, Director of the FSAs Major Financial Groups Division, who oversaw the Theme project, said:

"We intend to focus our regulatory attention mainly on these higher risk clusters. Prevention is better than cure. Wherever necessary, we want to help these sectors improve their money laundering controls. We will support this through communication, raising awareness and through supporting the training of staff and management in the firms concerned. We set out the regulatory tools we intend to use with each of these clusters which will include consumer alerts, helping train the industry, inspection of firms by specialist FSA teams and enforcement action where necessary."

Notes for editors

1. The FSA has today published Money Laundering Theme: Tackling our new responsibilities which sets out the results of a themed project which looked at the issue of money laundering across all sectors regulated by the FSA.

2. The aims of the Money Laundering Theme were to assess current levels of industry compliance with the Money Laundering Regulations 1993; identify which financial activities and sectors are subject to the greatest risk of money laundering; set out how the FSA will take forward its new responsibilities and allocate regulatory resources; and raise the profile of money laundering within the financial sector and emphasise to firms the consequence of failing to meet the minimum standards set out in the FSAs new rules and the 1993 Regulations.

3. The Money Laundering Theme carried out, for the first time, a review of the current state of compliance with anti-money laundering regulations in the financial services industry. The research was based on intelligence gathered from a range of sources which included an independent industry survey; supervisory visits and meetings with a representative sample of firms; the findings of the FSAs Abacha investigation; National Criminal Intelligence Service data; a survey of law enforcement authorities; and consultation with industry bodies and trade associations. The full findings of the independent industry survey are published with the Theme paper; it received 300 responses from Money Laundering Reporting Officers at a cross-section of firms regulated by the FSA. On the back of this research, the Theme also comes up with examples of good practice in terms of effective anti-money laundering systems and controls.

4. The FSA is the principal regulator of the UK financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

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