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FCA Priorities for Payments Firms: Ensuring Financial System Integrity and Combatting Financial Crime

FCA Priorities for Payments Firms: Ensuring Financial System Integrity and Combatting Financial Crime

The Financial Conduct Authority (FCA) has outlined its priorities for payment firms to ensure financial system integrity is not compromised and to prevent financial crime. These priorities centre on two areas: money laundering and sanctions, and fraud prevention.

Priority 1: Money Laundering & Sanctions

Firms subject to the UK’s Money Laundering Regulations must have comprehensive and proportionate systems and controls in place to identify, assess, monitor, and manage money laundering risk. Additionally, firms must operate effective systems and controls to identify and manage any sanctions exposure and risk associated with their customers and business activities.

The FCA has identified material issues with financial crime systems and controls at Payment Institutions (PIs) and Electronic Money Institutions (EMIs). Common issues include inadequate Know Your Customer (KYC) procedures, poorly supported business-wide risk assessments, insufficiently detailed policies and procedures, and failure to maintain and evolve the control framework.

Firms must ensure their anti-money laundering systems and controls are effective and commensurate with business risks. Regular reviews to assess compliance with anti-money laundering obligations and sanctions requirements should be conducted, and weaknesses swiftly remediated. Firms are also expected to comply with their responsibilities under the Proceeds of Crime Act 2002 and Terrorism Act 2000 through accurate and timely submissions of Suspicious Activity Reports (SARs).

Priority 2: Fraud Prevention

The FCA has observed elevated fraud rates in some PIs and EMIs and is concerned about potential further increases due to the cost-of-living crisis. This necessitates immediate action to address weaknesses in systems and controls to prevent fraud. Common weaknesses include insufficient emphasis on mitigating customer fraud risk, lack of engagement with industry information-sharing bodies, and backlogs in fraud reports from consumers.

To protect customers against fraud risk and prevent firms from being used to receive proceeds of fraud, firms should review their internal risk appetite statements and policies, regularly review their fraud prevention systems and controls, and maintain appropriate customer due diligence controls at onboarding stage and on an ongoing basis.

By addressing these priorities, payment firms can safeguard the integrity of the financial system, combat financial crime, and foster a secure environment for their customers. Adhering to the FCA's guidance and proactively addressing these areas is crucial in maintaining trust and stability in the rapidly evolving payments industry.

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