PS24/17: Financial Crime Guide updates

Policy Statement
PS24/17
Financial Crime Guide Changes
Feedback to CP24/9 and Final Guidance
November 2024

This relates to
Consultation Paper CP24/9 which is available on our website at www.fca.org.uk/ publications Telephone:
0207 066 0984
Email:
cp24-9@fca.org.uk
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Contents
Chapter 1 Summary Page 4
Chapter 2 Who this affects Page 5
Chapter 3 Feedback on CP24/9 Page 10
Annex 1 List of non-confidential respondents Page 21
Annex 2 Abbreviations used in this paper Page 22
Appendix 1 Made rules (legal instrument)

Chapter 1
Summary
1.1 Financial crime is a key priority in our 2022-2025 Strategy. Our approach to supervision
is proactive and data-led, focusing on the effectiveness of firms’ systems and controls, disrupting wrongdoing, pursuing firms and individuals and removing those who do not comply with our rules from the financial system. As part of the Strategy, we publish findings and provide feedback to industry on both common problems and good practice. In line with this, we provide information and advice in relation to our functions, including those involving financial crime supervision. Our Financial Crime Guide (‘the Guide’) provides practical help and information for all the firms we supervise. The Guide provides examples of good practice that firms can adopt to reduce the risks of being used to further financial crime. Public Consultation on Proposed Changes
1.2 To uphold our commitment to providing feedback and guidance, we launched a public
Consultation Paper 24/9 (CP24/9) in April 2024 on potential changes to the Guide. We invited views on these proposed changes, focusing on sanctions, proliferation financing (PF), transaction monitoring (TM), cryptoasset businesses, the Consumer Duty and other consequential changes such as data security and updating case studies. The consultation period lasted 9 weeks and concluded on 27 June 2024.
1.3 We received 42 responses over the consultation period, from both the private and
public sectors, individuals working for regulated firms, academics, non-governmental organisations, and trade associations. This feedback has been a valuable resource in helping us assess the effectiveness of our current guidance on financial crime and the proposed changes, as well as helping us to define future areas of focus for the Guide. Our Response to the Feedback
1.4 This Policy Statement addresses the feedback received and publishes the final draft of
the Guide. The statement includes:

• An overview of the consultation process.
• Summary of key themes raised in the feedback.
• Our responses to these themes.
  1.5 The feedback received has directly influenced the final draft of the Guide, resulting
  in amendments. The remaining feedback will be considered for potential future amendments to the Guide.

Chapter 2
Who this affects
2.1 This Policy Statement affects:

• All FCA financial crime supervised firms.
• Firms that we supervise under the Money Laundering, Terrorist Financing and
  Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), including cryptoasset businesses.
  2.2 These firms are expected to have read and considered the revised finalised Guide and
  to use their judgement on how it may help them ensure they have effective systems and controls in place.
  2.3 The Guide will also be of interest to individuals and organisations that provide services to
  these firms, such as:
• Individuals and organisations working with firms subject to FCA financial crime and
  MLRs supervision.
• Financial Services Sector Trade Associations and any other parties interested
  in FCA financial crime supervision. This could include non-governmental organisations working on financial crime prevention and academics.
  2.4 The Guide is targeted at firms and will be of limited relevance to consumers.
  The wider context of this policy statement Focus and scope of proposed changes
  2.5 The consultation was published on 29 April 2024. The proposed changes to the Guide
  are designed to ensure it remains a valuable resource for firms we regulate, offering guidance on financial crime systems and controls. The revised Guide aims to help firms identify and assess relevant financial crime controls more effectively.
  2.6 The proposed changes focus on areas where we identified firms wanted additional
  guidance to clarify our expectations. These changes reflect insights from our supervisory work on financial crime and incorporate updates from our recent publications. We are also considering further revisions to other chapters in due course. Alignment with our objectives
  2.7 The publication supports the following FCA objectives:
• Consumer protection
  – Good financial crime systems and controls can directly protect consumers and their money. Firms should have proportionate financial crime systems

and controls, reflective of their business. This will be reinforced by making it clear that all firms must also consider whether their systems and controls are consistent with the Consumer Duty.

• Market Integrity
  – We are committed to making sure that firms and markets are not used as conduits for financial crime. These changes provide guidance to firms on actions they may take when evaluating or setting up their financial crime systems and controls.
• International competitiveness and growth
  – Financial crime imposes significant costs across the economy. It harms consumers directly, undermines their confidence in financial services and damages the UK’s international reputation. Therefore, reducing it is important both for economic growth and the UK’s international competitiveness. At the same time, we can help ensure costs for firms are proportionate by releasing clear guidance that allows firms to be confident that they are fulfilling their obligations, while also allowing them to take potentially more efficient innovative, technology-led approaches to activities such as transaction monitoring. What we are changing
  2.8 Our changes are designed to reduce and prevent the harm of financial crime by
  providing firms with information and guidance on financial crime systems and controls. We have drafted changes in the following areas:
  2.9 Sanctions: Following Russia’s illegal invasion of Ukraine in 2022, we conducted extensive
  assessments of firms’ sanctions’ systems and controls. We are updating the sanctions
  chapter to reflect what we and firms have learned.
  2.10 Proliferation Financing (PF): We are updating the guidance to ensure PF is explicitly
  referenced throughout the Guide where appropriate. This includes highlighting a 2022 change to the MLRs, which requires firms to conduct PF Risk Assessments.
  2.11 Transaction Monitoring (TM): We are setting key guidance for firms on how to
  implement and monitor transaction monitoring systems. This includes supporting responsible innovation and new technological approaches.
  2.12 Cryptoasset Businesses: Cryptoasset businesses registered under the Money
  Laundering Regulations (MLRs) have been subject to FCA supervision for AML/CTF/PF purposes since January 2020. We are making it clear that cryptoasset businesses should refer to the Guide.
  2.13 Consumer Duty: The Guide clearly states that firms should consider whether their
  systems and controls are consistent with their obligations under the Duty.

2.14 Consequential Changes: We are making consequential changes to the Guide, including
replacing expired links, updating outdated references to European Union rules and refreshing case studies based on more recent FCA enforcement notices.
2.15 Please refer to the final guidance as set out in Annex 1.
Outcomes we are seeking
2.16 Our aim with these changes is to reduce the harm of financial crime to financial
markets and consumers. Following the publication of this Policy Statement and the final guidance, we are expecting:

• Firms to have read and understood the changes.
• Firms to review their systems and controls in light of the changes, where
  applicable.
• Firms to evaluate whether their systems and controls are adequate and
  proportionate, considering the revised guidance.
• Firms to have a heightened awareness of what constitutes good and poor practice.
• Ultimately, we expect to see improved compliance across the firms we supervise,
  with firms being able to demonstrate they have considered the Guide. Measuring success
  2.17 We are assessing the impact of the updated Guide by monitoring the engagement of
  firms and their feedback on the proposed changes during the consultation and our future consultations on the Guide.
  2.18 We will continue to refine the guidance in line with our supervisory findings and
  publications. We also appreciate feedback on chapters and areas not covered in the consultation that respondents believe we should focus on in the future. We will use this information to inform future updates to the Guide. Summary of feedback and our response
  2.19 This section provides a summary of the feedback and our responses.
  2.20 Sanctions: Feedback on the sanctions updates was positive, with respondents
  welcoming clarifications on payment and cryptoasset businesses, senior management accountability, and new self-assessment questions. In response to the feedback suggestions, we have updated some of the terminology for clarity and added clarifications on the UK scope of the Guide and the examples. We have also clarified some of the drafting on reporting significant sanctions breaches as set in SUP15.3 and made other changes to align with Office of Financial Sanctions Implementation (OFSI) requirements and legislative positions. We also added clarifications to examples for manual and automated sanctions screening, and the scope of screening processes. We

will consider future revisions to the sanctions chapter, including examples of good and poor practice, guidance on screening, further references to the new Office of Trade Sanctions Implementation and trade sanctions, and adding case studies to help firms evaluate their systems and controls.
2.21 Proliferation Financing: Respondents were satisfied with the additions to the Guide
that refer to the requirement for PF risk assessment as set out under the Money Laundering Regulations 2017. Respondents suggested more examples of good and poor practice and a clearer division between PF and sanctions chapters. We have decided that, since specific sanctions regimes are aimed at deterring the proliferation and use of chemical weapons it remains appropriate to not introduce a separate chapter on PF. We will consider adding any good and poor practice on PF based on supervisory findings in future updates of the Guide.
2.22 Transaction Monitoring: Feedback on TM was positive. Respondents welcomed
the proportionate approach to technology and AI’s potential to increase efficiency. Respondents also appreciated the refreshed case studies and examples of good and poor practice. We revised some terminology to avoid misinterpretation of our expectations, and expectations and added best practice examples for system rules and AI governance when using automated systems.
2.23 Cryptoasset businesses: Firms supported the inclusion of cryptoasset businesses
in the Guide, with slight amendments for clarity on the examples we provide for these businesses. The Guide remains sector-agnostic, focusing on financial crime controls and specific risks.
2.24 Consumer Duty: Respondents requested additional clarity on aligning the Guide
with the Consumer Duty. This has led to more cross-references to Consumer Duty rules and guidance, making it clear that firms must act to deliver good outcomes for retail customers and ensure that their systems and controls are consistent with the Consumer Duty.
2.25 The Economic Crime and Corporate Transparency Act 2023 (ECCTA): ECCTA has
enhanced anti-money laundering powers, promoting better information sharing on economic crimes. We support the successful implementation of these powers and believe they will help firms better detect and prevent financial crime. As such, we have now replicated the good practice example on information sharing from Sanctions
Chapter 7 in Chapter 3 on Risk Assessments to encourage data sharing partnerships.
We also clarify that ECCTA allows businesses to share information to combat economic crime without civil liability for confidentiality breaches. However, firms must not misuse these measures to exclude customers and must comply with the UK General Data Protection Regulation.
2.26 Consequential changes: Respondents were positive about the proposed changes to
practice examples and self-assessment questions. The consequential changes include naming firms in case studies, clarifying the roles of the Money Laundering Reporting Officer (MLRO) and Senior Manager, ensuring functional web links and removing outdated references to the EU.
2.27 For future updates to the Guide, some respondents requested:

• More detailed guidance on fraud, especially Authorised Push Payment (APP)
  scams, synthetic identity fraud and digital fraud. We plan to review the relevant chapters in the Financial Crime Guide, focusing on APP fraud, as part of any future update.
• Examples of AI and machine learning in detecting financial crime. We are exploring
  these technologies’ safe integration and impact on markets, and whether future updates may be needed.
  2.28 There was also a request for more guidance on domestic Politically Exposed Persons
  (PEPs). In July 2024, we published a Guidance Consultation 24/4 (GC24/4) on a proportionate approach to UK PEPs. Following the consultation, we will be publishing the final guidance and a Policy Statement. This Financial Crime Guide directs firms to the PEP Guidance, and we will update the link following the PEP guidance update.
  2.29 We will continue to refine the guidance in line with our supervisory findings and
  publications. We also appreciate feedback on chapters and areas not covered in CP24/9 that respondents believe we should focus on in the future. Equality and diversity considerations
  2.30 We have considered the equality and diversity issues that may arise from these changes
  to the Guide and concluded that they do not materially impact any of the groups with protected characteristics under the Equality Act 2010.
  2.31 We maintain that the Guide should not adversely impact groups under the Equality Act
  2010 but have responded to the feedback we received during the consultation in 3.56. Next steps What you need to do next
  2.32 If your firm is affected by these changes, you need to consider what adjustments may
  be needed to your financial crime systems and controls. This could include changes to internal policies, monitoring systems, training, governance or other elements of your systems and controls. Some firms may need to implement more changes than others, while some may find that their existing systems and controls already align with the new guidance and require no adjustments. What we will do next
  2.33 We will continue to engage with firms following this publication and publish our findings.
  These may result in further changes to the Guide. We also continue to use our other supervisory publications for firms to outline our financial crime approach and provide guidance to firms.
  2.34 We hope that financial crime regulated firms find the Guide revisions helpful. We look
  forward to engaging with firms for further feedback on how we can improve the Guide.

Chapter 3
Feedback on CP24/9
Feedback on Proposed Draft Guidance: CP24/9
3.1 In CP24/9 we asked:
Question 1: Do you agree with the suggested drafting as set out in this Consultation Paper? This chapter further summarises the feedback received and our response, including any changes we are making:
Sanctions
3.2 The feedback on the sanctions updates was generally positive. Respondents welcomed
additional clarification on the scope of the guidance to payment and cryptoasset businesses. They also welcomed guidance on senior management accountability for sanctions risk and governance and said the new self-assessment questions and the additional drafting in the customer due diligence chapter was useful. They asked for further clarity on some of the terminology in the reporting requirements, automated and manual sanctions monitoring and screening among other small amendments. We are considering future changes to the chapters as set in 3.12 of this PS. Our response We have updated the terminology in the sanctions chapter for clarity and consistency. Specifically, we have changed ‘sanctioned countries’ to ‘sanctioned jurisdictions’ throughout FCG 7.2. We have also referred to ‘sanctions regimes’ when it relates to a particular jurisdiction or specific regime, and UK sanctions, when it relates to the overall UK sanctions framework. Additionally, we now refer to ‘sanctions targets’ rather than individuals or entities subject to sanctions. Some respondents requested further clarity on the UK nexus and guidance on the application of the Guide beyond the UK, particularly for non-UK sanctions frameworks. The Guide and its provisions are provided in the context of the UK financial sanctions framework as set out in FCG
7.1. However, we have amended the reporting guidance in FCG 7.1.5 to
clarify that the Guidance sets the notification expectation for firms which are the target of UK sanctions or those of other countries or jurisdictions, along with other clarifications throughout the FCG 7 on the scope of the guidance. We have been asked to clarify the meaning of ‘agents’ in FCG
7.1.5 and note that it is a defined term in the FCA glossary.

We have also clarified the distinction between the UK Sanctions List and the Consolidated List maintained by OFSI in FCG 7.1.5A. We were asked to provide more clarification about when firms should notify us of suspected sanctions breaches. In response, we are clarifying that firms should report suspected sanctions breaches to us in line with Principle 11 and SUP 15.3.8G(2). For example, suspected breaches of sanctions resulting from significant failures in their systems and controls. We note that SUP 15.3.1R and SUP 15.3.8(2)G cover the timeliness of reporting to the FCA, and so have not sought to replicate that guidance in FCG 7. We have amended good practice example 3 in FCG 7.2.3C accordingly to remove a separate reference to timescales. We have also amended a poor practice example in FCG 7.2.3C to ‘The firm does not report a breach of financial sanctions to OFSI when required to do so’ to align the Guide with the legislative position on OFSI reporting. Some respondents requested changes to the CDD section for further clarity. In response we have noted that CDD is relevant to other financial crime controls and have made the following changes to the good practice examples:

• Example 2 in FCG 7.2.2.A has been amended to ‘The firm’s CDD
  identifies all parties relevant for its screening processes’.
• Example 3 in FCG 7.2.2A has been amended to ‘The firm’s customer
  onboarding and due diligence processes are designed to identify customers...’. Respondents also asked us to clarify the scope of manual and automated sanctions screening in FCG 7.2.3, and other areas in FCG 7.2.3A on evasion detection. In response, we have clarified where the examples in FCG 7.2.3 apply specifically to automated screening, made reference to the red flags for sanctions evasion issued by the National Economic Crime Centre (NECC) in FCG 7.2.3A and other minor amendments to drafting, such as:
• Amended good practice example 7 to state that screening tools are
  tailored to the firm’s risk and are appropriate for screening UK sanctions.
• Added wording to reflect that the investigation of alerts is part of
  sanctions screening processes.
• Clarified that ‘increased volumes and pressure on sanctions teams
  following changes in the sanctions landscape’ can prevent firms from effectively managing sanctions compliance.
• Clarified that firms’ screening processes may differ depending on the
  nature of a firm’s business and their assessment of risk. We do not intend to provide comprehensive sector-specific guidance on screening processes. However, we will consider including additional identified good and poor practices in future revisions to the FCG, which may provide further guidance.

We have removed text suggesting an OFSI licence is required to retain customers who are designated persons. In chapters FCG 7.2.1 (Governance) to FCG 7.2.2 (Risk Assessment), and other areas, we have made several changes:

• For instance, we amended poor practice example 2 in FCG 7.2.1,
  changing the word ‘ensure’ to ‘manage’ as this is more appropriate. Additionally, we added the word ‘material’ in front of ‘sanctions developments’ in example 3 of good practice in FCG 7.2.2 to reflect feedback, agreeing that lessons learned should be proportionate and relevant to the firm.
• We also combined amended Q2 in the self-assessment questions in
  FCG 7.2.2, to clarify the distinction with Q5. Q2 now reads ‘where it has identified new sanctions risk events’. Furthermore, we referenced the NECC red alerts for sanctions evasion to give firms additional red flag indicators to help in identifying evasion.
• We addressed wider points on governance, accountability, outsourcing
  and other areas by providing examples in Chapter 7. However, we remind firms that these should be read in conjunction with other FCG systems and controls chapters for financial crime, as they are also relevant for sanctions risk management.
• One respondent asked us to remove text in our proposed amendments
  in FCG 7.2.3A on identifying close associates and dependents. We have not removed the text as we think it is important to identify potential enablers of evasion. While these will not be designated persons, data analysis of known designated persons’ activity may help in identifying them. In addition to these changes, we will consider future revisions to FCG 7 in areas such as further examples of good and poor practices for senior management responsibility and management information, particularly where we identify sanctions-specific examples. We will also consider providing further guidance on screening and consider changes and further references to the Office of Trade Sanctions Implementation (OTSI) and non-financial sanctions, such as trade sanctions. Additionally, we will consider providing more case studies to help firms evaluate their systems and controls. Proliferation Financing (PF)
  3.3 Overall, respondents were satisfied with the additions made to the Guide on PF and
  making it clear that PF risk assessment is a requirement on firms under the Money Laundering Regulations 2017.

3.4 Some respondents suggested further good and poor practice examples on PF risk
assessment, including links to other publications and a clearer division between proliferation financing and sanctions chapters. Our response We carefully considered the proposal to separate PF from the wider
Chapter 7 on Sanctions and Proliferation Financing. However, we
concluded that as the 2 topics are closely related with no specific PF case studies there was currently no justification to separate the chapter. We have included an additional reference to the PF Risk Assessment in FCG 7.2.2. This acts as a reminder that the risk assessment requirements in FCG 2.2.4G on risk assessment for financial crime apply to sanctions as well as proliferation financing (see addition in FCG 7.2.2G). Transaction Monitoring (TM)
3.5 Respondents welcomed our drafting on a proportionate approach to using technology
in transaction monitoring, and the reference to the potential of AI to increase efficiency of TM. Respondents also welcomed the refreshed case studies on TM and additional good and poor practice examples for automated systems.
3.6 Some respondents suggested that we reconsider some of the chapter’s terminology to
avoid misinterpretation.
Our response
We have removed the word ‘hibernation’ from the example in FCG 3.2.5A. Some respondents were concerned that there is no clear definition in place, and this may cause different approaches when applying the Guide. We have provided a good practice example for firms to test and update system parameters appropriately. We think that this is important to make sure that whichever approach they take it can help effectively identify suspicious activity. We have further clarified that FCG 3.2.5A includes our expectations for both manual and automated TM unless the example specifies otherwise or refers solely to an automated monitoring system. We have revised the wording in FCG 3.2.5A: ‘To date, many large institutions have used transaction monitoring systems that work on a transaction-by-transaction or unusual transaction basis, or combination of the two flagging fund movements that exceed rule-driven thresholds for human scrutiny.’ This change reflects the variety of TM systems in use.

Some respondents suggested that the use of ‘verify’ was unduly restrictive. In response, we have modified poor practice example 6 ‘A firm does not verify that a counterparty firm is monitoring customer activity’ to ‘A firm does not check that a counterparty firm is monitoring customer activity’. We have added a new good practice example on tailoring and testing a transaction monitoring system to the emphasise the importance of this for effective monitoring. This reads: ‘The firm tailors the monitoring system rules to its business, risk, and relevant typologies. The system and rules are tested, reviewed, and adapted/kept up to date to ensure the right outcomes' as suggested. We agreed with the comments that an added example will provide further guidance on governance and audit trail, while welcoming innovative approaches. So, we have added a new good practice example on record keeping for systems using AI: ‘The firm keeps records of how the AI has been trained, and the process for making adjustments, specifically how the interpretable model can be maintained’. Cryptoasset Businesses
3.7 Firms supported we make explicit mention of cryptoasset businesses being expected to
use the Guide. Some respondents asked whether there needed to be a specific chapter for these business types and others sought clarification on some of our proposed drafting.
3.8 We have slightly amended the wording on the self-assessment question to ensure
relevant risks are addressed: ‘For cryptoasset business, how are risks of different types of cryptoasset (e.g. anonymity-enhanced or privacy coins) or wallet solutions assessed and addressed?’
3.9 Some respondents suggested we consider creating a sub-chapter for cryptoasset
firms. The Guide, in principle, is agnostic to sectors and instead focuses on elements of financial crime controls and specific risks, such as money laundering, fraud and sanctions. However, we know that some chapters and good/poor practice examples are more relevant to certain firms or sectors. For sector specific guidance, firms can refer to our supervisory findings, other publications or portfolio letters. The Consumer Duty
3.10 The Consumer Duty came into force on 31 July 2023 for new and existing (open)
products. As of July 2024, it is now in force for all products. It introduced a more outcomes-focused approach to consumer protection and sets high expectations for the standard of care that firms give retail customers.
3.11 The Duty applies to all aspects of a firm’s retail market business, from developing
products and services through to distribution and post-sale activities.

3.12 Respondents have requested more clarity on aligning the Guide with the Duty. They
have pointed out instances where they believe the Guide might conflict with the Duty. This includes situations where concerns about unfair client treatment may conflict with the need for thorough due diligence, asset freezing and a risk-based approach.
3.13 In response, we have added more cross-references to the rules and the non-Handbook
Guidance for firms on the Duty in the Finalised Guidance 22/5 (FG22/5). This will help firms in balancing their Consumer Duty obligations with financial crime obligations.
3.14 The Duty does not imply that consumers can or will be protected from all harms or
that all harms are preventable. Harm may occur in unforeseeable circumstances, such as when financial crime obligations emerge as part of the firms’ operations. However, we expect firms to consider what actions might be appropriate once harm becomes foreseeable.
3.15 Where other legislative or regulatory requirements apply, firms should continue to
comply with them. The Duty does not replace or override other requirements. If financial crime requirements prescribe certain actions, firms must comply with them, but they will need to think more widely about their approach to meet our expectations under the Duty. We therefore encourage firms to consider their financial crime obligations in relation to the Duty, especially in relation to Principle 12 and the cross-cutting rules, which are now referenced in the Guide:

• Principle 12: A firm must act to deliver good outcomes for retail customers.
• PRIN 2A.2.1R: A firm must act in good faith towards retail customers.
• PRIN 2A.2.8R: A firm must avoid causing foreseeable harm to retail customers.
• PRIN 2A.2.14R: A firm must enable and support retail customers in pursuing their
  financial objectives.
• Consumer Duty outcome provisions:
• PRIN 2A.5: retail customer outcome on consumer understanding.
• PRIN 2A.6: retail customer outcome on consumer support
  3.16 These will be relevant where firms consider their approach to dealing with financial
  crime. For example, when dealing with victims of fraud, firms should consider the relevant rules in the support they provide customers and their communication. Data Security
  3.17 We received positive feedback on the Data Security Chapter FCG 5 changes.
  Respondents thought that the new examples will be particularly helpful for practitioners. Although we received a limited number of proposals for changes, we have implemented the following adjustments:
• Adding a good practice example on firms’ ability to restore systems following an
  incident, including requirement that restoration is done in a timely manner.
• Adding a poor practice example of inadequate controls to revoke access for staff
  that leave the firm or their department.
  3.18 In addition to directing firms to the 10 steps of cybersecurity, we have also linked the
  National Cyber Security Centre (NCSC) cyber security toolkit for Boards in FCG 5.4.1.

3.19 Some of the respondents requested further guidance on secure implementation of
Generative AI in the context of data security. This is an area we continue to monitor. Data and Information Sharing
3.20 The Economic Crime and Corporate Transparency Act (ECCTA) has strengthened anti￾money laundering powers, enabling improved information-sharing on suspected money
laundering, fraud and other economic crimes. This includes enabling businesses, under certain circumstances, to share information more readily for preventing, detecting or investigating economic crime. It does so by disapplying civil liability for breaches of confidentiality for firms that share information to combat economic crime. We support the effective application of these powers and believe they strengthen firms’ ability to detect and prevent financial crime.
3.21 Based on the feedback received, we have replicated good practice example 4 from
section FCG 7.2.2 in section FCG 3.2.3. This makes it clearer that we encourage firms
to participate in information and data sharing partnerships. We have also included a glossary definition for ECCTA.
3.22 In section FCG 3.2.3, we have noted that the measures under ECCTA are not intended
to provide firms with additional powers to inappropriately exclude customers. Regulated firms should use these measures to help with their risk-based decision-making process. Firms should refrain from sharing information for commercial reasons and must consider their obligations under UK GDPR. Consequential Changes
3.23 We have received generally positive feedback on the good and poor practice examples
and the self-assessment questions. Firms have found these useful and clear. We have considered feedback and made the following changes:

• Some respondents have flagged that the FCG should consistently either name
  or not name the firms in our case studies. They found that anonymising the firms makes it more difficult for them to know if they have previously assessed the case study. In response to the feedback, we have returned to our original practice of naming the firms in our case study examples. This allows firms to find and identify the referenced final notices. As Final Enforcement Notices are publicly available on our website, we are comfortable with continuing this approach. We have added a clarification in the Guide that the MLRO and Senior Manager can be the same person, as stated in FCG 3.2.2.
• We have made additional changes throughout the document to ensure that all
  weblinks are functional and have added additional links to other useful materials.
• We have removed a reference to a Joint Money Laundering Steering Group
  (JMLSG) Guide definition of ‘equivalent jurisdiction’ as it no longer applies in the UK, following removal of the definition from the JMLSG after the UK’s departure from the European Union.

Feedback on Future Amendments
3.24 In CP24/9 we asked:
Question 2: For future iterations of the Guide which chapters in the Guide would you like us to consult on or provide further guidance? Are there any financial crime topics currently not in the Guide that you would like us to consult on in the future? This section presents the feedback received on Question 2. We have already addressed some of the feedback on future changes in our response to Question 1, in particular those linked to the suggested drafting in CP24/9. Fraud
3.25 Respondents suggested that future guidance on fraud would be helpful for firms. This
includes specific coverage of APP scams and details on preventing other prevalent types of fraud, such as synthetic ID and digital fraud.
3.26 Fraud prevention is one of our priority areas. We want to use the full range of our toolkit,
including the Financial Crime Guide, to address and reduce the harms caused by fraud. Our strategic focus is on 2 key areas: investment fraud and APP fraud. In line with this, we are actively planning to review the chapters on fraud in the Financial Crime Guide. This review is aimed at ensuring that we continue to provide valuable and appropriate guidance that meets the needs of firms in their ongoing efforts to combat fraud. Technology, Artificial Intelligence and Machine Learning
3.27 For future updates, respondents have asked us to include more examples of AI and
machine learning applications. Specifically, about how firms can use these technologies to detect and prevent financial crime and manage associated risks.
3.28 We have taken this feedback into account and are collaborating across the FCA to
explore the connection between our broader work on AI and machine learning and the Guide. We are a principles-based and outcomes-focused regulator. We are focusing on how firms can safely and responsibly adopt AI technology, as well as on understanding what impact AI innovations are having on consumers and markets.
3.29 We want to promote the safe and responsible use of AI in UK financial markets and
leverage AI in a way that drives beneficial innovation. The FCA sees beneficial innovation as a vital component of effective competition. For further detail, please refer to our published AI Update. Politically Exposed Persons (PEPs)
3.30 Feedback shows firms would like additional guidance on the treatment of domestic
PEPs. This related to changes introduced by the Money Laundering and Terrorist Financing (Amendment) Regulations 2023, stipulating that the starting point for a

firm’s risk assessment of PEPs is that all domestic PEPs present a lower risk than non￾domestic PEPs unless other risk factors are apparent.
3.31 We have incorporated a reference to Money Laundering and Terrorist Financing
(Amendment) Regulations 2023 in the Guide ‘common terms’ Annex 1. We have also included the existing link to the Finalised Guidance 17/6 (FG17/6), which already provides guidance on our expectations on the treatment of politically exposed persons for anti￾money laundering purposes.
3.32 In July 2024, we published the outcome of multi firm work on the treatment of PEPs.
Alongside this, we published proposals for targeted updates to our existing guidance in GC24/4. This consultation included proposed changes to reflect the changes of the MLRs. The consultation closed in October, and we will publish the final guidance for firms in due course. Firms should continue to follow our guidance and refer to the revised version of the guidance once published. Once published, we will include a reference and a link to the finalised ‘PEP Guidance’ in the Financial Crime Guide via Rulemaking and Amending Instruments process in the Handbook or during the next iteration of updates to the Guide. Feedback: Unintended Consequences, Equality and Diversity and Cost Benefit Analysis
3.33 In CP24/9 we asked:
Question 3: Do you foresee any unintended consequences from the proposals? Response A small number of respondents expressed concerns about aligning the financial crime guidance with the Consumer Duty. This issue was also brought up in responses to Question 1. We have addressed this in 3.29, adding more references to the Duty and relevant guidance to assist firms.
3.34 In CP24/9 we asked:
Question 4: Do you agree with our cost benefit analysis and conclusion? If you do not, please provide an explanation, including any estimated costs or benefits that may be relevant.

Response
We received a small number of responses about our Cost Benefit Analysis (CBA). Many of these asked for more detail and transparency about how we had compiled our cost estimates. We estimated costs following our methodology set out in our Statement of Policy on Cost Benefit Analysis. Several responses suggested that the per-firm cost estimates in our CBA were too low. These respondents suggested that many firms are under-resourced and would require costly consultants to help implement changes. One firm noted that the familiarisation costs estimated would be an additional cost to firms of doing business within the UK. One response disagreed with our assumption that a gap analysis will not be required by most firms, asserting that firms will need to assess controls against several of the new areas added to the Financial Crime Guide. Another response suggested that our cost estimates may not account for all necessary adjustments in procedures and training. In our CBA, we noted some firms may have higher costs beyond familiarisation with the Guide but highlighted that we were uncertain how many firms do so. Some responses suggested that certain costs may be higher than we set out in the CBA. However, respondents did not provide any additional evidence to quantify the extent of these differences, and responses did not suggest alternative assumptions we should use. We have therefore not made any adjustments to the costs we presented. We consider these costs proportionate to the expected benefits of our intervention (reduced financial crime).
3.35 In CP24/9 we asked:
Question 5: Do you agree with the comments on the assessment of the equality and diversity considerations? Response We have taken into account the potential equality and diversity issues that could emerge from this Policy Statement and the feedback gathered during the consultation. In light of the consultation feedback, we have given additional thought to the potential impact of our proposed guidance on consumers. As a result, we have incorporated more references to the Consumer Duty principles and expectations for firms to operate at a standard that ensures suitable protection for retail customers. We believe that our proposals will have a positive impact on consumers by ensuring that firms take the Duty into account when designing their systems and controls. We have also added links to the Duty guidance in the Guide, which provides information on

achieving good outcomes for customers, including those in vulnerable situations. We continue to explore other areas highlighted during the consultation to determine whether our future updates, especially those related to fraud and technology, could unintentionally affect equality and diversity.

Annex 1
List of non-confidential respondents

1. We are obliged to include a list of the names of respondents to our consultation who
   have consented to the publication of their name. That list is as follows:
   AI & Partners
   Alastair Cookson, Director - Redline Capital (UK) Limited API Compliance Ltd The Association of Professional Compliance Consultants Brian Swainston, Deputy MLRO – Fidelity International ClearBank DataWise Forensics Debt Managers Standards Association Ltd (DEMSA) Deloitte Fenergo Finance and Leasing Association Forvis Mazars The Investing and Saving Alliance (TISA) Joshua Tjeransen, International Consultant (Proliferation Finance) – United Nations Office On Drugs and Crime (UNODC) Marilyne Ordekian, PhD Candidate – Computer Science, University College London Nottingham Building Society Odyssey Pensions Limited Perenna Bank Venkatesh Balasubramaniam, CAMS, CFCS, Consulting Partner – Wipro Technologies Ltd Yonder Technology

Annex 2
Abbreviations used in this paper
Abbreviation Description
AI Artificial Intelligence
AML Anti-Money Laundering
APP Fraud Authorised Push Payment Fraud
CDD Customer Due Diligence
CTF Counter Terrorist Financing
ECCTA Economic Crime and Corporate Transparency Act 2023 EDD Enhanced Due Diligence FATF Financial Action Task Force FCA Financial Conduct Authority FCG Financial Crime Guide FSA Financial Service Authority (Predecessor to the FCA) FSMA Financial Service and Markets Act 2000 GDPR General Data Protection Regulation JMLSG Joint Money Laundering Steering Group KYC Know Your Customer MLRO Money Laundering Reporting Officer MLRs The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 NCSC National Cyber Security Centre OFSI The Office of Financial Sanctions Implementation OTSI The Office of Trade Sanctions Implementation PEPs Politically Exposed Persons PF Proliferation Financing TM Transaction Monitoring

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Appendix 1
Made rules (legal instrument)

FCA 2024/46
FINANCIAL CRIME GUIDE (AMENDMENT) INSTRUMENT 2024 Powers exercised A. The Financial Conduct Authority (“the FCA”) makes this instrument in the exercise of the powers and related provisions in or under:
(1) section 139A (Power of the FCA to give guidance) of the Financial Services and Markets Act 2000; (2) regulation 120(1) (Guidance) of the Payment Services Regulations 2017; and (3) regulation 60(1) (Guidance) of the Electronic Money Regulations 2011. Commencement B. This instrument comes into force on 29 November 2024. Amendments to material outside the Handbook
C. The Financial Crime Guide: A firm’s guide to countering financial crime risks (FCG)
is amended in accordance with the Annex to this instrument.
Citation
D. This instrument may be cited as the Financial Crime Guide (Amendment) Instrument 2024. By order of the Board 28 November 2024

FCA 2024/46
Annex
Amendments to the Financial Crime Guide: A firm’s guide to countering financial crime risks (FCG) In this Annex, underlining indicates new text and striking through indicates deleted text. 1 Introduction
1.1 What is the FCG?
…
1.1.5 …
Where FCG refers to guidance in relation to SYSC requirements, this may also be relevant to compliance with the corresponding Principle in our Principles for Businesses and corresponding requirements in the Payment Services Regulations and the Electronic Money Regulations. All elements of the FCG but particularly FCG 3 on money laundering and FCG 7 on sanctions will be relevant to cryptoasset businesses registered with us under the Money Laundering Regulations. …
1.1.11 FCG is not a standalone document; it does not attempt to set out all applicable
requirements and should be read in conjunction with existing laws, rules and guidance on financial crime. If there is a discrepancy between FCG and any applicable legal requirements, the provisions of the relevant requirement prevail. If firms have any doubt about a legal or other provision or their responsibilities under FSMA or other relevant legislation or requirements, they should seek appropriate professional advice. Among other requirements, firms should consider whether their financial crime systems and controls are consistent, where applicable, with their Consumer Duty obligations. For instance, in complying with the Consumer Duty, firms may consider additional steps in their customer journeys to help prevent financial crime, including fraud. They may also consider offering additional consumer support, such as:

• a real-time human interface to deal with security or fraud concerns;
• engagement with customers during customer due diligence processes; or
• providing information on their application or application outcome for
  products and services.
  Firms should consider FG22/5 when applying their financial crime systems and controls. In particular, firms may find it helpful to consider the following provisions:

FCA 2024/46

• Principle 12: A firm must act to deliver good outcomes for retail
  customers;
• Cross-cutting obligations:
  o PRIN 2A.2.1R: A firm must act in good faith towards retail customers; o PRIN 2A.2.8R: A firm must avoid causing foreseeable harm to retail customers; and o PRIN 2A.2.14R: A firm must enable and support retail customers to pursue their financial objectives; and
• Consumer Duty outcome provisions:
• PRIN 2A.5 (Consumer Duty: retail customer outcome on consumer
  understanding); and
• PRIN 2A.6 (Consumer Duty: retail customer outcome on consumer
  support).
  Firms should note that the Consumer Duty does not replace or override other applicable rules, guidance or law and does not require firms to act in a way that is incompatible with any legal or regulatory requirements, such as those under financial crime rules and obligations under the Money Laundering Regulations.
  1.1.12 To find out more on the Consumer Duty, see ‘FG22/5 Final Non-Handbook
  Guidance for firms on the Consumer Duty’
  (www.fca.org.uk/publication/finalised-guidance/fg22-5.pdf).
  …
  3 Money laundering and terrorist financing …
  3.2 Themes
  …
  The Money Laundering Reporting Officer (MLRO)
  3.2.2 …
  Firms to which this section applies must appoint an individual as MLRO. The MLRO is responsible for oversight of the firm’s compliance with its anti-money laundering obligations and should act as a focal point for the firm’s AML activity. Regulation 21(1)(a) of the Money Laundering Regulations also requires the appointment of a senior manager as the officer responsible for the relevant person’s compliance with these regulations. Where appropriate, this section can be relevant to how that person meets their obligations under the Money Laundering Regulations. If the MLRO meets the requirements in regulation 21(1)(a) and (3), firms need not make a separate notification to us. …

FCA 2024/46
Risk assessment
3.2.3 The guidance in FCG 2.2.4G and FCG 7.2.5G on risk assessment in relation to
financial crime and proliferation financing (PF) also applies to AML. The assessment of money laundering financial crime and PF risk is at the core of the firm’s AML, counter-terrorist financing (CTF) and PF effort and is essential to the development of effective AML/CTF/PF policies and procedures. A firm is required by Regulation 18 of the Money Laundering Regulations to undertake a risk assessment. This also includes a risk assessment by relevant persons in relation to PF as set out in Regulation 18A of those regulations. Firms must therefore put in place systems and controls to identify, assess, monitor and manage money laundering, terrorist financing and PF risk. These systems and controls must be comprehensive and proportionate to the nature, scale and complexity of a firm’s activities. Firms must regularly review their risk assessment to ensure it remains current. Under section 188 of the Economic Crime and Corporate Transparency Act 2023, firms are able to share information with one another for the purpose of preventing, detecting and investigating economic crime. Regulated firms should use this information to assist with their risk-based decision making and should not share it for commercial reasons or to provide sectors with additional powers to exclude customers inappropriately. Firms must also consider their obligations under the General data protection regulation. Self-assessment questions:

• Which parts of the business present greater risks of money laundering,
  terrorist financing and PF? (Has your firm identified the risks associated with different types of customer customers or beneficial owner owners, product products, services, activities, transactions, business line lines, geographical location locations and delivery channel channels (e.g. internet, telephone, branches)? Has it assessed the extent to which these risks are likely to be an issue for the firm?)
• How does the risk assessment inform your day-to-day operations? (For
  example, is there evidence that it informs the level of customer due diligence you apply or your decisions about accepting or maintaining relationships?)
• For cryptoasset businesses, how do you assess and address the risks of
  different types of cryptoasset (e.g. anonymity-enhanced or privacy coins)? Examples of good practice Examples of poor practice …
• The firm has identified good
  sources of information on money laundering, terrorist financing and PF risks, such as National Risk Assessments, ESA Guidelines, …

FCA 2024/46
FATF mutual evaluations and typology reports, NCA alerts, press reports, court judgements, reports by non-governmental organisations and commercial due diligence providers.

• Consideration of money laundering,
  terrorist financing and PF risk associated with individual business relationships takes account of factors such as:
  o company structures; o political connections; o country risk; o the customer’s or beneficial owner’s reputation; o source of wealth; o source of funds; o expected account activity; o factors relating to the customer’s countries or geographic areas of operations; o products and services; o transactions; o delivery channels; o sector risk; and o involvement in public contracts. …
• The firm identifies where there is a
  risk that a relationship manager might become too close to customers to identify and take an objective view of the money laundering risk. It manages that risk effectively. …
• The firm engages with public￾private partnerships and private￾private partnerships to gather
  insights on the latest financial crime typologies and additional controls that might be relevant and shares its own best practice examples.

FCA 2024/46
…
Customer due diligence (CDD) checks
3.2.4 …
Self-assessment questions:
…

• Are procedures sufficiently flexible to cope with customers who cannot
  provide more common forms of identification (ID)?
• With non-face-to-face transactions, how does your firm’s approach
  provide confidence that the person is who they claim to be? How do you test any technology used as part of onboarding? … Ongoing monitoring
  3.2.5 …
  Self-assessment questions:
  …
• How do you feed the findings from monitoring back into the customer’s
  risk profile?
• Do you frequently review the monitoring system rules and typologies for
  effectiveness? Do you understand the threshold and rule rationales? Examples of good practice Examples of poor practice …
• The firm uses monitoring results
  to review find out whether CDD remains adequate.
• A cryptoasset business assumes that
  blockchain analysis is all that is required to monitor transactions and fails to do its own transaction monitoring based on the knowledge of its customers or relying on off-chain information.
• The firm takes advantage of
  customer contact as an opportunity to update due diligence information.
• The firm’s measures fail to conduct
  a full assessment of the risk. For instance, the firm does not consider changes in the nature of the relationship or expected activities.
• The firm demonstrates a risk-based
  approach following a monitoring event. This could include

FCA 2024/46 implementing regular periodic reviews and having procedures for event-driven reviews. … See regulations 27, 28(11), 33, 34 of the Money Laundering Regulations. The use of transaction monitoring 3.2.5A This section is relevant to a firm using transaction monitoring as part of its ongoing monitoring efforts to detect money laundering, financing of terrorism and proliferation financing (see FCG 3.2.5G (Ongoing monitoring)). This could be relevant to firms serving either retail or wholesale customers. To date, many large institutions have used transaction monitoring systems that work on a transaction-by-transaction or unusual transaction basis, or combination of the two, flagging fund movements that exceed rule-driven thresholds for human scrutiny. We understand that more sophisticated approaches show potential in this area, and can be used to take a more rounded view of customer behaviour – for example, showing how the customer fits into broader networks of activity. Examples of such sophisticated technologies include the use of machine learning tools or tools based on artificial intelligence to detect suspicious activity or triage existing alerts. This section applies to the use of both automated and manual transaction monitoring, unless specified otherwise. Self-assessment questions:

• Do you understand the effectiveness of your automated monitoring in
  different business areas?
• What actions have been taken to mitigate shortcomings that have been
  identified in business areas?
• What consideration has been given to alternative varieties of automated
  monitoring, including the use of novel approaches?
• Where a firm uses automated methods for triaging alerts generated by
  threshold-driven transaction-monitoring systems (e.g. scorecards overlaid on existing systems or other systems to prioritise which alerts receive manual attention), can this be justified within the context of the firm’s overall approach to monitoring? Examples of good practice Examples of poor practice
• New approaches are piloted or
  subject to evaluation periods, with firms able to demonstrate appropriate testing.

FCA 2024/46

• Monitoring arrangements (whether
  automated or manual or both) seek to take a holistic view of customer behaviour and draw on a range of data, rather than just transaction￾by-transaction analysis.
• The control framework around
  automated monitoring is weak. For example, senior management have an unrealistic expectation of what automated monitoring systems are feasibly able to achieve, while manual scrutiny of alerts lacks resources and is unable to cope.
• Monitoring is applied, where
  appropriate, at multiple levels of aggregation:
  o transaction level (the lowest); o account level (the aggregate of transactions for an account); o customer level (the aggregate of accounts for a specific customer); and o linked-entity level (i.e. across a group of linked customers by relationship managers).
• Threshold-based transaction
  monitoring approaches are used in situations where they are not suitable, while other methods of scrutiny (such as oversight of customers by relationship managers) are neglected.
• When decommissioning an
  existing automated system (or aspects of that system, such as particular rule sets), a firm is able to justify this decision. Consideration may be given to, for example, the relative merits of other approaches (including manual approaches), the systems’ resource implications, and the systems’ performance outcomes (such as the intelligence-value of alerts and the proportion of ‘false positives’).
• A threshold-based, rule-driven
  transaction monitoring system is used but is poorly calibrated and the firm struggles to articulate the rationale for particular rules and scenarios.
• Before a new system replaces an
  existing one, a robust judgement is formed about the relative usefulness of both systems. While each system may not flag all the same events, the firm is able to demonstrate that one approach produces better quality alerts overall.
• Data fed into an automated system
  is not migrated smoothly when feeder systems are modified or upgraded or transactions from a specific system have been erroneously omitted from the transaction monitoring system.

FCA 2024/46

• A firm explores the use of new
  approaches to automated monitoring (e.g. network analysis or machine learning). Consideration is given to the limitations of these approaches and how any resultant risks can be contained. (For example, it will not be clear to operators of more free-form varieties of machine learning why the software has made its recommendations, which can pose ethical and audit challenges.)
• The firm tailors the monitoring
  system rules to its business, risk and relevant typologies. The system and rules are tested and reviewed for right outcomes
• The firm uses a transaction
  monitoring system with set rules
  (which could include use of off-the￾shelf systems) and does not calibrate these to the firms’ individual needs or review them regularly for efficiency.
• The firm practices good record
  keeping. For example, records of decision making and rationales for thresholds are documented and accessible.
• Where a firm learns that criminals
  have abused its facilities, a review is performed to learn how monitoring methods could be improved to lessen the risk of recurrence.
• The firm using an automated
  system appropriately tests and updates parameters to determine whether a transaction is indicative of potentially suspicious activity.
• A firm does not check that a
  counterparty firm is monitoring customer activity.
• A firm using an automated system
  keeps records of how the system has been trained. It records the process for making adjustments and
• A firm using an automated system
  lacks an understanding of what the system is detecting and why. This may be because of, for example, staff turnover, poor

FCA 2024/46 how the interpretable model can be maintained. documentation or weak communication with the system’s vendor. See regulations 27, 28(11), 33 and 34 of the Money Laundering Regulations. Case study – transaction monitoring 3.2.5B The FCA found that 3 key parts of HSBC’s transaction monitoring systems showed serious weaknesses over an extended period of several years. The systems were ineffective and not sufficiently risk sensitive for a prolonged period. They exposed the bank and community to avoidable risks. In particular, the bank failed to:

• consider whether the scenarios used to identify indicators of money
  laundering or terrorist financing covered relevant risks;
• carry out timely risk assessments for new scenarios;
• appropriately test and update the parameters within the systems that were
  used to determine whether a transaction was indicative of potentially suspicious activity. There was a failure to understand those rules and certain thresholds set made it almost impossible for the relevant scenarios to identify potentially suspicious activity; and
• check the accuracy and completeness of the data being fed into, and
  contained within, monitoring systems. This resulted in millions of transactions worth billions of pounds that were either monitored incorrectly or not at all. The FCA imposed a financial penalty of £63,946,800. See the FCA’s press release: www.fca.org.uk/news/press-releases/fca-fines-hsbc￾bank-plc-deficient-transaction-monitoring-controls. … Handling higher risk situations
  3.2.7 …
  The Money Laundering Regulations also set out some scenarios in which specific enhanced due diligence measures have to be applied:
• Correspondent relationships: where a correspondent credit institution or
  financial institution, involving the execution of payment, is outside the EEA from a third country (see regulation 34 of the Money Laundering Regulations), the UK credit or financial institution should apply both EDD measures in regulation 33 as well as additional measures outlined in regulation 34 commensurate to the risk of the relationship. This can include in higher risk situations thoroughly understanding its correspondent’s business, reputation, and the quality of its defences against money laundering and terrorist financing. Senior management must also give

FCA 2024/46 approval before establishing a new correspondent relationship. JMLSG guidance sets out how firms should apply EDD in differing correspondent trading relationships. …

• Business relationships or a ‘relevant transaction’ where either party is
  established in a high risk third country: the Money Laundering Regulations defines:
  (a) a high-risk third country as being one identified by the EU Commission by a delegated act. See EU Regulation 2016/1675 (as amended from time to time) as a country named by FATF on its list of High-Risk Jurisdictions subject to a Call for Action or its list of Jurisdictions under Increased Monitoring; …
• Other transactions: EDD must be performed:
  …
  (b) in any other case which by its nature can present a higher risk of money laundering, proliferation financing or terrorist financing. This can include where there is evidence that a cryptoasset transaction has involved privacy-enhancing techniques or products such as ‘mixers’ or ‘tumblers’, privacy coins and transactions involving the use of self-hosted addresses, obfuscated ledger technology, ring signatures, stealth addresses, ring confidential transactions, atomic swaps and non-interactive zero knowledge proofs; and (c) where findings from blockchain analysis indicates exposure to criminal or sanctioned activities. … … Customer payments
  3.2.13 This section applies to banks subject to SYSC 6.3.
  Interbank payments can be abused by criminals. International policymakers have taken steps intended to increase the transparency of interbank payments, allowing law enforcement agencies to more easily trace payments related to, for example, drug trafficking or terrorism. The Funds Transfer Regulation requires Money Laundering Regulations require banks to collect and attach information about payers and payees of wire transfers (such as names and addresses, or, if a payment moves within the EU, a unique identifier like an account number) to payment messages. Banks are also required to check this information is present on inbound payments, and chase missing data. The FCA has a legal responsibility to supervise banks’ compliance with these requirements. Concerns have also

FCA 2024/46 been raised about interbank transfers known as “cover payments” (see FCG
Annex 1) that can be abused to disguise funds’ origins. To address these
concerns, the SWIFT payment messaging system now allows originator and beneficiary information to accompany these payments. From 1 September 2023, similar obligations have applied for cryptoasset transfers undertaken by cryptoasset businesses registered with the FCA under the Money Laundering Regulations. This chapter may assist cryptoasset businesses in implementing this requirement but they should also have regard to specific expectations set out by the FCA. For further information, see www.fca.org.uk/news/statements/fca-sets-out-expectations-uk-cryptoasset￾businesses-complying-travel-rule. … Case study – poor AML controls
3.2.14 …
See the FSA’s FCA’s press release for more information:
www.fsa.gov.uk/pages/Library/Communication/PR/2010/077.shtml www.fca.org.uk/publication/final-notices/alpari.pdf. … Case study – poor AML controls: PEPs and high-risk customers
3.2.16 …
See the FSA’s FCA’s press release for more information:
www.fsa.gov.uk/library/communication/pr/2012/032.shtml www.fca.org.uk/publication/final-notices/coutts-mar12.pdf. Poor AML controls: risk assessment
3.2.17 …
See the FSA’s FCA’s press release for more information:
www.fsa.gov.uk/library/communication/pr/2012/055.shtml www.fca.org.uk/publication/final-notices/habib-bank.pdf. …
3.4 Sources of further information
3.4.1 To find out more on anti-money laundering, see:
…

• The latest UK National Risk Assessment of money laundering and
  terrorist financing 2017 2020 - https://www.gov.uk/government/publications/national-risk-assessment￾of-money-laundering-and-terrorist-financing-2017

FCA 2024/46 www.gov.uk/government/publications/national-risk-assessment-of￾money-laundering-and-terrorist-financing-2020 …
3.4.2 To find out more on countering terrorist finance, see:
…

• The European Supervisory Authorities (ESAs) have published risk factors
  guidelines under Articles 17 and 18(4) of Directive (EU) 2015/849- https://www.eba.europa.eu/-/esas-publish-aml-cft-guidelines https://www.eba.europa.eu/sites/default/files/documents/10180/1890686/ 66ec16d9-0c02-428b-a294- ad1e3d659e70/Final%20Guidelines%20on%20Risk%20Factors%20%28J C%202017%2037%29.pdf …
  3.4.3 To find out more on customer payments, see:
• JMLSG guidance (www.jmlsg.org.uk/guidance/current-guidance/):
  o Sector 22 of Part II (Cryptoasset exchange providers and custodian wallet providers) and Annex 22-I of Part II (Cryptoassets Transfers (‘Travel Rule’)); and o Chapter 1 of Part III (Transparency in electronic payments (Wire transfers)) of the JMLSG’s guidance, which will be banks’ chief source of guidance on this topic: www.jmlsg.org.uk. …
• The Wolfsberg Group’s statement on payment standards:
  https://www.wolfsberg￾principles.com/sites/default/files/wb/pdfs/wolfsberg￾standards/1.%20Wolfsberg-Payment-Transparency-Standards-October￾2017.pdf https://db.wolfsberg-group.org/assets/373dbb28-b518-4080- 82cc￾4be7a54aa16e/Wolfsberg%20Group%20Payment%20Transparency%20S tandards%202023.pdf
• Joint Guidelines to prevent terrorist financing and money laundering in
  electronic fund transfers- http://www.eba.europa.eu/-/esas-provide￾guidance-to-prevent-terrorist-financing-and-money-laundering-in￾electronic-fund-transfers
• The Funds Transfer Regulation (EU Regulation 847/2015 on information
  on the payer accompanying transfers of funds):
  http://data.europa.eu/eli/reg/2015/847/oj
• The Money Laundering Regulations
• FCA statement: www.fca.org.uk/news/statements/fca-sets-out￾expectations-uk-cryptoasset-businesses-complying-travel-rule
  3.4.4 …

FCA 2024/46
3.4.5 To find out more on proliferation financing, see:

• The UK National risk assessment of proliferation financing 2021:
  assets.publishing.service.gov.uk/media/65a01397e96df50014f844fe/Risk assessment_of_proliferation_financing__1.pdf
• FATF work on proliferation financing: www.fatf￾gafi.org/en/topics/proliferation-financing.html
  4 Fraud
  …
  4.2 Themes
  Preventing losses from fraud
  4.2.1 …
  Examples of good practice Examples of poor practice …
• Enhanced due diligence is
  performed on higher risk customers
  (e.g. commercial customers with limited financial history. See ‘long firm fraud’ in FCG Annex 1). …
• Cryptoasset businesses pre-screen
  outbound transactions for addresses linked to fraud.
  …
  Enforcement action against mortgage brokers
  4.2.4 Since the FSA began regulating mortgage brokers in October 2004, the FSA have
  banned over 100 mortgage brokers. Breaches the FCA has identified as part of enforcements actions against mortgage brokers have included:
  …
  The FSA have FCA has referred numerous cases to law enforcement, a number of which have resulted in criminal convictions. …
  4.4 Sources of further information
  …

FCA 2024/46
4.4.2 The list of other bodies engaged in counter-fraud activities is long, but more
information is available from:
…

• Fighting Fraud Action (FFA-UK) is responsible for leading the collective
  fight against financial fraud on behalf of the UK payments industry, https://www.financialfraudaction.org.uk/. … 5 Data security …
  5.2 Themes
  …
  Controls
  5.2.3 …
  Effective cyber practices
  5.2.3A Self-assessment questions:
• Are critical systems and data backed up, and do you test backup recovery
  processes regularly?
• Are you able to restore services in the event of an incident?
• Are network and computer security systems, software and applications
  kept up to date and regularly patched? Do you make sure your computer network and information systems are configured to prevent unauthorised access?
• How do you manage user and device credentials? Do you ensure that staff
  use strong passwords when logging on to hardware and software? Are the default administrator credentials for all devices changed?
• Is two-factor authentication used where the confidentiality of the data is
  most crucial?
• How do you protect sensitive data that is stored or in transit? Do you use
  encryption software to protect your critical information from unauthorised access? Examples of good practice Examples of poor practice
• Using weak or easy to guess
  passwords or creating passwords from familiar details.

FCA 2024/46

• The firm carries out regular
  vulnerability assessments and patching.
• Poor physical management and/or
  control of devices.
• The firm carries out regular
  security testing.
• Not setting out appropriate user
  privileges on access to resources on the firm’s network, data storages or applications.
• An application programming
  interface (API) allows different software to communicate with each other and has security measures in place.
• Not encrypting data at storage or
  between networks.
• Not updating devices, software and
  operating systems with the latest security patches.
• Not properly vetting third-party
  systems and vendors.
• Not employing multi-factor
  authentication for devices, systems and services.
• Insufficient staff training around
  social engineering and vishing and phishing campaigns.
• The firm is able to restore systems
  following an incident and restorations are done in a timely manner.
• Inadequate controls to revoke
  access for staff that leave the firm, the role or the department. Case study – protecting customers’ accounts from criminals
  5.2.4 …
  For more, see the FSA’s FCA’s press release:
  www.fsa.gov.uk/pages/Library/Communication/PR/2007/130.shtml www.fca.org.uk/news/press-releases/fsa-fines-norwich-union-life- %C2%A3126m-exposing-its-customers-risk-fraud Case study – data security failings

FCA 2024/46
5.2.5 …
The FSA’s FCA’s press release has more details:
www.fsa.gov.uk/pages/Library/Communication/PR/2010/134.shtml www.fca.org.uk/news/press-releases/fsa-fines-zurich-insurance- %C2%A32275000-following-loss-46000-policy-holders-personal …
5.4 Sources of further information
5.4.1 To find out more, see:

• the website of the Information Commissioner’s Office: www.ico.org.uk.
• National Cyber Security Centre, 10 Steps to Cyber Security:
  www.ncsc.gov.uk/collection/10-steps/data-security.
• National Cyber Security Centre, Cyber Security Toolkit for Boards:
  www.ncsc.gov.uk/collection/board-toolkit/introduction-to-cyber-security￾for-board-members. 6 Bribery and corruption …
  6.2 Themes
  …
  Case study – corruption risk
  6.2.5 In January 2009, Aon Limited, an insurance intermediary based in the UK, was
  fined £5.25m for failures in its anti-bribery systems and controls. The firm made suspicious payments totalling $7m to overseas firms and individuals who helped generate business in higher risk jurisdictions. Weak controls surrounding these payments to third parties meant the firm failed to question their nature and purpose when it ought to have been reasonably obvious to it that there was a significant corruption risk.
• Aon Limited failed properly to assess the risks involved in its dealings
  with overseas third parties and implement effective controls to mitigate those risks.
• Its payment procedures did not require adequate levels of due diligence to
  be carried out.
• Its authorisation process did not take into account the higher levels of risk
  to which certain parts of its business were exposed in the countries in which they operated.
• After establishment, neither relationships nor payments were routinely
  reviewed or monitored.

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• Aon Limited did not provide relevant staff with sufficient guidance or
  training on the bribery and corruption risks involved in dealings with overseas third parties.
• It failed to ensure that the committees it appointed to oversee these risks
  received relevant management information or routinely assessed whether bribery and corruption risks were being managed effectively. See the FSA’s press release:
  www.fsa.gov.uk/pages/Library/Communication/PR/2009/004.shtml In 2020, the FCA and the PRA fined Goldman Sachs International a total of £96.6m (US$126m) for risk management failures connected to a Malaysian development company (‘the company’) and its role in 3 fundraising transactions for the company. The bank failed to assess and manage risk to the standard that was required given the high-risk profile of the transactions and failed to assess risk factors on a sufficiently holistic basis. The bank also failed to address allegations of bribery in 2013 and failed to manage allegations of misconduct in connection with the company in 2015. The bank breached a number of FCA and PRA principles and rules. In particular, the bank failed to:
• assess with due skill, care and diligence the risk factors that arose in each of
  the bond transactions on a sufficiently holistic basis;
• assess and manage the risk of the involvement in the bond transactions of a
  third party about which the bank had serious concerns;
• exercise due skill, care and diligence when managing allegations of bribery
  and misconduct in connection with the company and the third bond transaction; and
• record in sufficient detail the assessment and management of risk associated
  with the company bond transactions.
  See the FCA’s press release: www.fca.org.uk/news/press-releases/fca-pra-fine￾goldman-sachs-international-risk-management-failures-1mdb. Case study – inadequate anti-bribery and corruption systems and controls
  6.2.6 …
  See the FSA’s FCA’s press release:
  www.fsa.gov.uk/pages/Library/Communication/PR/2011/066.shtml www.fca.org.uk/news/press-releases/fsa-fines-willis-limited-%C2%A36895- million-anti-bribery-and-corruption-systems-and. Case study – third parties
  6.2.7 In 2022, the FCA fined JLT Speciality Limited £7,881,700 for financial crime
  control failings, which in one instance allowed bribery of over $3m to take place. The firm failed to consider whether additional safeguards or approvals should be incorporated into processes in respect to overseas introducers engaged by another

FCA 2024/46 group entity, where the introduced business was placed by the firm in the London market. Among other issues, the firm’s third-party risk assessments failed to:

• ensure that information held by employees who were either involved in
  negotiating the relationship with the third party or placing the business in the London market, including potential red flags, was brought to the attention of the company’s ‘know your customer’ subcommittee or its financial crime team;
• ensure that the other entity disclosed all material information about the third
  party to the financial crime team for review, consideration and action as necessary; and
• consider whether additional monitoring and oversight of third parties, in
  accordance with the firm’s process, was appropriate.
  See the FCA’s press release: www.fca.org.uk/news/press-releases/jlt-specialty￾limited-fined-7.8m-pounds-financial-crime-control-failings. …
  6.4 Sources of further information
  6.4.1 To find out more, see:
  …
• The Ministry of Justice’s guidance about procedures which relevant
  commercial organisations can put into place to prevent persons associated with them from bribing:
  https://www.justice.gov.uk/downloads/legislation/bribery-act-2010- guidance.pdf https://assets.publishing.service.gov.uk/media/5d80cfc3ed915d51e9aff85a /bribery-act-2010-guidance.pdf (full version) https://www.justice.gov.uk/downloads/legislation/bribery-act-2010-quick￾start-guide.pdf https://assets.publishing.service.gov.uk/media/5d80cfd5ed915d5257b5b69 3/bribery-act-2010-quick-start-guide.pdf (quick start guide) … 7 Sanctions and, asset freezes and proliferation financing
  7.1 Introduction
  7.1.1 Who should read this chapter? All firms are required to comply with the UK’s
  UK financial sanctions regime. The FCA’s role is to ensure that the firms it supervises have adequate systems and controls to do so. As such, this chapter applies to all firms subject to the financial crime rules in SYSC 3.2.6R or SYSC 6.1.1R. It also applies to e-money institutions and payment institutions and the cryptoasset sector within our supervisory scope.
  7.1.2 Firms’ systems and controls should also address, where relevant, the risks they
  face from weapons proliferators, although these risks will be very low for the majority of FSA-supervised FCA-supervised firms. FCG 7.2.5G, which looks at

FCA 2024/46 weapons proliferation, applies to banks carrying out trade finance business and those engaged in other activities, such as project finance and insurance, for whom the risks are greatest all firms subject to our supervision. …
7.1.5 All individuals and legal entities who are within or undertake activities within the
UK’s territory must comply with the EU and UK financial sanctions that are in force. All UK nationals and UK legal entities established under UK law, including their branches, must also comply with UK financial sanctions that are in force, irrespective of where their activities take place. Under Principle 11 (PRIN 2.1.1R), we expect authorised firms to notify us if they (or their group companies, approved persons, senior management functions, appointed representatives and agents) are targets of UK sanctions or those of any other country or jurisdiction. For firms such as electronic money institutions, payment services firms, cryptoasset businesses and Annex I financial institutions, this is regarded as a material change of circumstance and we expect to be informed if you or any connected entities are targets of UK sanctions or those of any other country or jurisdiction. 7.1.5A The Office of Financial Sanctions (OFSI) within the Treasury helps to ensure that financial sanctions are properly understood, implemented and enforced in the United Kingdom. HM Government publishes the UK Sanctions List, which provides details of those designated under regulations made under the Sanctions and Anti-Money Laundering Act. The list also details which sanctions measures apply to these persons or ships. OFSI maintains a Consolidated List of financial sanctions targets designated by the United Nations, the European Union and the United Kingdom, which is available from its website. If firms become aware of a breach, they must notify OFSI in accordance with the relevant provisions. OFSI have published guidance on complying with UK obligations and this is available on their website. See https://www.gov.uk/government/publications/financial￾sanctions-faqs. Firms should also consider whether they should report sanctions breaches to the FCA. SUP 15.3 contains general notification requirements. Firms are required to tell us, for example, about significant rule breaches (see SUP 15.3.11R(1)). Firms should therefore consider whether a sanctions breach is the result of any matter within the scope of SUP 15.3 – for example, a significant failure in their financial crime systems and controls. …
7.2 Themes
7.2.-1 The guidance set out in FCG 2.2 (Themes) and FCG 2.3 (Further guidance) also applies to sanctions. Governance

FCA 2024/46
7.2.1 The guidance in FCG 2.2.1G on governance in relation to financial crime also
applies to sanctions.
Senior management should be sufficiently aware of the firm’s obligations regarding financial sanctions to enable them to discharge their functions effectively. We expect senior management to take clear responsibility for managing sanctions risks, which should be treated in the same manner as other risks faced by the business. There should be evidence that senior management are actively engaged in the firm’s approach to addressing the risks of non-compliance with UK financial sanctions. Where they identify gaps, they should remediate them. Self-assessment questions:
…

• How does the firm monitor performance? (For example, statistical or
  narrative reports on matches or breaches.)
• How are senior management kept up to date with sanctions compliance
  issues?
• Does the firm’s organisational structure with respect to sanctions
  compliance across different jurisdictions promote a coordinated approach and accountability?
• Does the firm have evidence that sanctions issues are escalated where
  warranted?
• Where sanctions controls processes rely on resource external to the firm,
  is there appropriate oversight and understanding of that resource? Examples of good practice Examples of poor practice
• An individual of sufficient
  authority is responsible for overseeing the firm’s adherence to the UK sanctions regime.
• The firm believes payments to
  sanctioned individuals and entities are permitted when the sums are small. Without a licence from the Asset Freezing Unit OFSI, this could be a criminal offence.
• Multinational firms lack the
  communication between global and regional sanctions teams necessary to manage compliance with UK sanctions laws, regulations and guidance. … The offence will depend on the sanctions provisions breached.

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Management information (MI)
7.2.1A The guidance in FCG 2.2.2G on MI in relation to financial crime also applies to sanctions. Senior management should be sufficiently aware of the firm’s obligations regarding sanctions to enable them to discharge their functions effectively. Self-assessment questions:

• How does your firm monitor performance? (For example, statistical or
  narrative reports on matches or breaches.)
• Does regular and ad hoc MI provide senior management with a clear
  understanding of the firm’s sanctions compliance risk?
• Is the MI produced relevant to UK sanctions?
  Risk assessment
  7.2.2 The guidance in FCG 2.2.4G on risk assessment in relation to financial crime also
  applies to sanctions and proliferation financing (PF) (see 7.2.5G for PF). A firm should consider which areas of its business;
• are most likely to provide services or resources to individuals or entities
  on the Consolidated List.;
• are owned and controlled by individuals or entities on the Consolidated
  List;
• engage in services or transactions prohibited under UK financial
  sanctions; or
• rely on prohibited suppliers, intermediaries or counterparties.
  Self-assessment questions:
• Does your firm have a clear view on where within the firm breaches
  potential sanctions breaches are most likely to occur? (This may cover different business lines, sales channels, customer types, geographical locations, etc.)
• How is the risk assessment kept up to date, particularly after the firm
  enters a new jurisdiction, introduces a new product or where it has identified new sanctions risk events?
• Has senior management set a clear risk appetite in relation to its
  sanctions risks, including in its exposure to sanctioned persons, activities and jurisdictions?
• Does your firm have established risk metrics to help detect and manage
  its sanctions compliance exposure on an ongoing basis?
• Are there established procedures to identify and escalate new sanctions
  risk events, such as new sanctions regimes, sanctioned activities and evasion typologies?

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• Is your firm utilising available guidance and resources on new and
  emerging sanctions evasion typologies?
  Examples of good practice Examples of poor practice …
• A small firm is aware of sanctions
  regime and where it is most vulnerable, even if risk assessment is only informal. …
• The firm conducts contingency
  planning, taking a proactive approach to identifying sanctions exposure and is conducting exposure assessments and scenario planning. The firm updates business-wide and customer risk assessments to account for changes in the nature and type of sanctions measures.
• The firm performs lessons learned
  exercises following material sanctions developments to improve its readiness to respond to future events.
• The firm engages with public￾private partnerships and private￾private partnerships to gather
  insights on the latest typologies and additional controls that might be relevant and share its own best practice examples. Customer due diligence checks 7.2.2A As well as being relevant to other financial crime controls, effective customer due diligence (CDD) and know your customer (KYC) assessments are a cornerstone of effective compliance with sanctions requirements. Examples of good practice Examples of poor practice

FCA 2024/46

• Sanctions risk is proactively
  included into the firm’s CDD process.
• The firm has low-quality CDD and
  KYC assessments and review backlogs, raising the risk of not identifying sanctioned individuals and entities.
• The firm’s CDD identifies all
  parties relevant for its screening processes.
• The firm’s CDD processes are
  unable to identify connected parties and corporate structures that may be subject to sanctions.
• The firm’s customer onboarding
  and due diligence processes are designed to identify customers who make use of corporate vehicles to obscure ownership or source of funds.
• The firm’s CDD does not
  articulate full ownership structures of entities and the firm is unable to show that it is screening all relevant parties.
• The firm has processes designed
  to identify activity that is not in line with the customer profile or is otherwise suspicious. 7.2.2B Further guidance on good and bad practice relating to CDD checks can be found in FCG 3.2.4G. Screening customers against sanctions lists, counterparties and payments
  7.2.3 A firm should have effective, up-to-date screening systems appropriate to the
  nature, size and risk of its business. Although screening itself is not a legal requirement, screening new customers, counterparties to transactions and payments against the Consolidated List, and screening existing customers when new names are added to the list, helps to ensure that firms will not breach the UK sanctions regime. (Some firms may knowingly continue to retain customers who are listed under UK sanctions: this is permitted if OFSI has granted a licence.) Self-assessment questions:
  …
• How does the firm become aware of changes to the Consolidated List?
  (Are there manual or automated systems? Are customer lists rescreened after each update is issued?)
• Does your firm have a clear policy on which customers, counterparties
  and payments are subject to screening, and what related data is subject to screening?
• Does your firm have service level agreements that cover how quickly it
  updates its sanctions screening lists following updates to the Consolidated List and that are appropriate to the sanctions risks of its business?

FCA 2024/46

• Does your firm evaluate its screening capabilities so that its screening
  system is adequately calibrated for its needs and to monitor UK sanctions? Do you regularly test/measure the effectiveness of the system?
• Is the team responsible for sanctions compliance properly resourced and
  skilled to effectively perform sanctions screening and alert management?
• If using an outsourced service, does your firm have appropriate control
  and oversight of its sanctions screening controls?
  Examples of good practice Examples of poor practice …
• There are quality control checks
  over manual screening.
  …
• The firm understands its
  automated screening tool and how it is calibrated, and is able to demonstrate that it is appropriate to the firm’s risk exposure.
• Calibration is not adequately
  tailored and the system is either too sensitive or not sensitive enough. This may result in name variations not being detected, for example.
• The firm is able to show the
  controls in place to measure the effectiveness of its automated system, thresholds and parameters – for instance, with sample testing and tuning.
• There is limited or no
  understanding by the firm about how a third-party tool is calibrated and when lists are updated.
• Where a firm uses automated
  systems, these can make ‘fuzzy matches’ (e.g. able to identify similar or variant spellings of names, name reversal, digit rotation, character manipulation, etc.). The firm continually seeks ways to enhance the system to help identify potential sanctions breaches. … …
• Where the firm maintains an
  account for a listed individual or entity, the status of this account is clearly flagged to staff. …

FCA 2024/46

• A firm only places faith in relies on
  other firms’ screening (such as outsourcers or intermediaries) after taking steps to satisfy themselves itself this is appropriate.
• The firm is overly reliant on a
  third-party provider screening solution, with no oversight. The firm has no means of monitoring payment instructions.
• The screening tool is calibrated
  and tailored to the firm’s risk and is appropriate for screening UK sanctions. Customers and their transactions are screened against relevant updated sanctions lists and effective re-screening is in place to identify activity that may indicate sanctions breaches.
• Where blockchain analytics
  solutions are deployed, the firm ensures that compliance teams understand how these capabilities can be best used to identify transactions linked to higher risk wallet addresses, including those included on the Consolidated List.
• The firm’s sanctions teams are
  adequately resourced to avoid backlogs in sanctions screening and are able to react to those at pace.
• The firm lacks proper resources
  and expertise to ensure effective screening and investigation of alerts. It has significant backlogs and faces the risk of non￾compliance with its obligations.
• Increased volumes and pressure on
  sanctions teams following changes in the sanctions landscape prevent firms from taking appropriate and timely action for true positive alerts and increase the risk of errors. There is a lack of clarity around prioritisation of alerts, internal service level agreements and governance. Evasion detection and investigation 7.2.3A A firm should have effective, up-to-date screening systems appropriate to the nature, size and risk of its business. However, simple screening of names against the Consolidated List may not always identify potential sanctions evasion

FCA 2024/46 involving third parties and alternative detection techniques may be needed. Potential red flags for sanctions evasion are set out in alerts issued by the National Economic Crime Centre (NECC). Self-assessment questions:

• Does your firm understand potential sanctions evasion typologies relevant
  to its business and has it considered how to detect them?
• Has your firm considered whether additional procedures are needed to
  identify potential sanctions evasion?
  Examples of good practice Examples of poor practice
• The firm is using techniques, such
  as data analytics, to identify customers who may be close associates or dependents or have transactional links with designated persons, and so may represent a higher risk of sanctions non￾compliance. Asset freezing and licenses 7.2.3B When a financial sanction is an asset freeze, the funds and economic resources belonging to or owned, held or controlled by a designated person are generally to be frozen immediately by the person in possession or control of them, unless there is an exception in the legislation they can rely on, or they have a licence from OFSI. Self-assessment questions:
• Does your firm have clear policies and procedures as to when funds and
  economic resources are frozen or released?
• Have you assessed how any frozen funds and economic resources in your
  firm’s possession or control are maintained in compliance with UK sanctions?
• Does your firm have clear policies and procedures to assess, utilise and
  monitor the use of OFSI licences and statutory exceptions?
  Reporting and assessing potential sanctions breaches 7.2.3C Relevant firms are required to report to OFSI where they know or have reasonable cause to suspect a breach of financial sanctions, and notify OFSI if:
• a person they are dealing with, directly or indirectly, is a designated person;
• they hold any frozen assets; or
• they discover or suspect any breach while conducting their business.

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In line with Principle 11, SUP 15.3.8G(2) and FCG 7, firms must consider whether they need to notify us – for example, whether potential breaches of sanctions resulted from a significant failure in their systems and controls. Self-assessment questions:

• Is there a clear procedure that sets out what to do if a potential sanctions
  breach is identified? (This might cover, for example, alerting senior management, OFSI and the FCA, and giving consideration to whether to submit a Suspicious Activity Report).
• Does your firm consider the root causes of any potential sanctions
  breaches and consider the implications for its policies and procedures? Examples of good practice Examples of poor practice
• The firm undertakes a root cause
  analysis of potential sanctions breaches and uses them to update its sanctions controls. The firm does not report a breach of financial sanctions to OFSI when required to do so. This could be a criminal offence.
• After a breach, as well as meeting
  its formal obligation to notify
  OFSI, the firm reports the breach to the FCA. SUP 15.3 contains general notification requirements. Firms are required to tell us about significant rule breaches (see SUP 15.3.11R(1)), such as a significant failure in their financial crime systems and controls.
• Significant deficiencies in the
  firm’s systems and controls resulting in potential sanctions breaches are reported to the FCA. … Weapons proliferation
  7.2.5 Alongside financial sanctions, the government imposes controls on certain types
  of trade in order to achieve foreign policy objectives. The export of goods and services for use in nuclear, radiological, chemical or biological weapons programmes is subject to strict controls. Firms’ systems and controls and policies and procedures should address and mitigate the proliferation risks they face. Firms are also required to carry out proliferation financing risk assessments under regulation 18A of the Money Laundering Regulations, either as part of the existing practice-wide risk assessment or as a standalone document.

FCA 2024/46
…
…
7.3 Further guidance
7.3.1 FCTR contains the following additional material on sanctions and assets freezes:

• FCTR 8 summarises the findings of the FSA’s FCA’s thematic review
  Financial of financial services firms’ approach to UK financial sanctions and includes guidance on:
  …
  7.4 Sources of further information
  7.4.1 To find out more on financial sanctions, see:
  …
• Part III of the Joint Money Laundering Steering Group’s guidance, which
  is a chief source of guidance for firms on this topic: www.jmlsg.org.uk
• OFSI UK Financial Sanctions Guidance:
  www.gov.uk/government/publications/financial-sanctions-general￾guidance/uk-financial-sanctions-general-guidance
• Alerts published by the NECC: www.nationalcrimeagency.gov.uk/who￾we-are/publications/
• FCA sanctions webpages – these pages include our latest updates and
  details on how to report sanctions breaches to us:
  o www.fca.org.uk/russian-invasion-ukraine o www.fca.org.uk/firms/financial-crime/financial-sanctions
  7.4.2 To find out more on trade sanctions and proliferation, see:
  …
• The NCA’s website, which contains guidelines on how to report
  suspicions related to weapons proliferation:
  http://www.nationalcrimeagency.gov.uk/publications/suspicious-activity￾reports-sars/57-sar-guidance-notes www.nationalcrimeagency.gov.uk/who-we-are/publications/171-sar￾guidance-notes/file
• The FATF website. In June 2008, FATF launched a ‘Proliferation
  Financing Report’ that includes case studies of past proliferation cases, including some involving UK banks. This was followed up with a report in February 2010:
  https://www.fatf￾gafi.org/media/fatf/documents/reports/Typologies%20Report%20on%20P roliferation%20Financing.pdf.

FCA 2024/46 http://www.fatf-gafi.org/media/fatf/documents/reports/Status-report￾proliferation-financing.pdf.

• The FATF guidance on proliferation financing:
  o www.fatf-gafi.org/content/dam/fatf￾gafi/reports/Typologies%20Report%20on%20Proliferation%20Fina ncing.pdf o www.fatf￾gafi.org/en/publications/Financingofproliferation/Proliferation￾financing-risk-assessment-mitigation.html
• HM Government’s website, which includes the National Risk Assessment
  of Proliferation Financing: www.ncsc.gov.uk/collection/board￾toolkit/introduction-to-cyber-security-for-board-members
• The Office of Trade Sanctions Implementation (OTSI) helps to ensure that
  trade sanctions are properly understood, implemented and enforced. OTSI has published guidance regarding trade sanctions, and this is available on its website: www.gov.uk/otsi …
  Annex Common terms
  Annex 1 Common terms
  Annex 1 …
  Term Meaning
  …
  Data Protection Act
  1998 (DPA)
  …
  ECCTA The Economic Crime and Corporate Transparency Act …

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Telephone: +44 (0)20 7066 1000
Website: www.fca.org.uk
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