FCA AML Review Puts Corporate Finance Firms Under Increased Scrutiny

Corporate finance firms may have previously been seen as low on the FCA’s priority list, but this has clearly changed based on its latest foray into the sector. A survey was recently issued by the regulator to corporate finance firms, collecting information about their anti-money laundering controls and processes. If you’ve not yet formally conducted an enterprise-wide risk assessment around your approach to financial crime, now is very much the time.

Why the FCA is reviewing AML controls in corporate finance firms

Having looked at the survey, it’s clear that the regulator is keen to understand the controls each corporate finance firm has in place to prevent money laundering during its business activities. Corporate finance firms are exposed to money laundering risk both in respect of their clients and the transactions they advise on, regardless of whether they are taking part in fundraising activity or the receipt of consideration.

Cross-border transactions can also give rise to heightened risk where there are overseas sellers and investors who operate from potentially complex and opaque corporate structures. This makes it difficult to identify the source of funds and the ultimate beneficial owner behind parties to a transaction.

Which corporate finance firms were included in the FCA AML survey

From our understanding, the FCA sent the survey on a random basis to a selection of corporate finance firms.

It’s interesting to note that the regulator highlighted its intention to conduct more detailed reviews of recipients who do not complete the survey, so it’s important to respond.

Key areas covered by the FCA’s AML survey

The scope of the survey is quite comprehensive. Topics include governance and oversight, risk assessments, policies and procedures, levels of client due diligence, risk designations of clients (including disclosing numbers of clients in different risk ‘buckets’), transaction monitoring and sanctions screening, suspicious activity reporting, resources, and outsourcing.

Principal firms with appointed representatives must also respond to additional questions relating to their arrangements for appointed representatives.

The survey, in addition to the FCA’s Dear CEO letter published in September 2023, illustrates that the corporate finance sector is receiving increased regulatory attention. This means that, even if you haven’t received the survey or might not have the regulator imminently knocking on your door, we think this is an opportune moment to review your anti-money laundering (AML) control framework, test the effectiveness of your control measures, identify any gaps, and implement the necessary enhancements to meet current regulatory expectations.

How Ocorian supports AML compliance for corporate finance firms

We can support by conducting an in-depth AML health check, providing AML training for staff, reviewing your financial crime risk assessment, and advising on the steps needed to mitigate money laundering risks and address any identified weaknesses.

Get in touch to find out more or if you need clarity on any of the regulatory requirements relating to AML compliance.

Author: Queenie Yu, Ronnie Kwok