The past few years have seen the Financial Conduct Authority (FCA) stepping up its efforts to reduce and prevent financial crime.
From tighter regulations and well-publicised fines to more frequent compliance spot checks, the FCA has made it clear that every financial services firm has a duty to carry out thorough customer due diligence and put in place internal controls and monitoring systems to prevent money laundering.
This increased focus on money laundering may feel like yet another burden for financial advice firms, who face an ever-rising tide of regulations. Yet having robust anti-money laundering controls, such as source of wealth verification, is not only good for the economy and society, but will also strengthen the overall understanding of the client’s financial situation. This supports other areas important to the FCA such as suitability and Consumer Duty.
Ready for the regulator
One of the day-to-day responsibilities under money laundering supervision is to take steps to identify your customers and check they are who they say they are. Keeping client verification files updated and readily accessible will ensure you are in a good position should the FCA ask to see them; and it is not uncommon for the FCA to expect a three-day turnaround. Recently, the FCA has become more proactive in checking non-banking firms, including financial advice firms, so the chances of your files being requested have substantially increased.
There are various anti-money laundering safeguards that financial services firms need to implement, but one that is increasingly in focus is jurisdiction risk – when the client’s wealth is derived from a high-risk country. Where jurisdiction risk exists, the FCA will expect firms to have enhanced customer due diligence measures in place and to implement ongoing monitoring. You might need to prod a little, but it is far better to do a thorough job than to carry out a tick-box exercise and miss something. This reduces the risk to your firm’s reputation, and it also reduces personal risk for those advisers working in smaller firms.
When it comes to your clients, helping them to prepare and maintain an up-to-date portfolio of verification documents will help them in the long term. It removes the burden of having to pull together documents every time they are requested by a discretionary fund manager (DFM). It also helps to avoid delays when placing investments with a DFM, or other third parties who are bound by the same regulations (e.g. a SIPP provider).
Many DFMs have strengthened their money laundering controls in recent years, so advisers who outsource investment management may see additional questions or requirements around customer verification. The good news is that it is much better to have your money laundering controls scrutinised by a DFM, so that if you receive a visit from the regulator, you should be much better prepared.
At RBC Brewin Dolphin, we work with advisers to ensure their customer due diligence records have been tested and give guidance on where their controls may be falling short, or could be tightened.
We also understand that firms where acquisitions of other books of business have taken place may need to be considered separately. We recognise that some historical records may be missing at the time of transfer, so we are keen to work hand in hand with those businesses to ensure that we can close any anti-money laundering gaps. This enables us to present a full picture of the client to all parties in any relationship, including the regulator.
From our own experience, the following five points are always worth bearing in mind when considering whether your money laundering controls are robust enough:
- Client verification: keep client files, including certified copies of ID, readily available.
- Understand your clients’ source of wealth and be aware of high-risk industries and jurisdictions – your investment manager may require corroboration of the source of wealth.
- Work with your client to maintain an up-to-date and complete customer due diligence portfolio; it will help avoid delays when placing investments with the most suitable asset managers for their needs.
- Ensure you inform relevant asset managers of any changes to your clients’ circumstances.
- Stay up to date with regulatory change and expectations.
By doing things properly and viewing anti-money laundering as a benefit not a burden, we can all help to avoid issues arising in the future for our clients, ensure that we are regulatory compliant, and, ultimately, play our part in making the UK a strong, legitimately funded, financial market.
To find out more, please contact your local RBC Brewin Dolphin Business Development Manager.
The value of investments, and any income from them, can fall and you may get back less than you invested. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. Opinions expressed in this publication are not necessarily the views held throughout RBC Brewin Dolphin Ltd.