The Financial Conduct Authority has warned that financial crime oversight among corporate finance firms shows significant gaps.
A recent FCA survey found that two-thirds of corporate finance firms not required to submit financial crime returns may be falling short of money laundering rules.
Corporate finance firms, which help businesses raise capital by connecting them with investors and lenders, are vital to the UK economy, making effective financial crime controls essential.
The FCA noted that 11% of firms surveyed had no documented business-wide risk assessment, a requirement under the Money Laundering Regulations. Without this, firms risk exposing themselves and the wider market to money laundering, fraud and other forms of financial crime.
Other key findings included:
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10% of firms said they did not retain documented evidence of customer due diligence.
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29% of principal firms did not conduct financial crime risk assessments for their appointed representatives.
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6% of principal firms reported not monitoring their appointed representatives’ compliance with financial crime regulations or carrying out on-site audits.
The regulator also identified good practice, such as firms regularly updating risk assessments to reflect emerging threats and using detailed management information to strengthen controls. Ninety-seven percent of respondents said they report financial crime concerns to senior management.
Andrea Bowe, director of the specialist directorate at the FCA, said: “Corporate finance firms play a vital role in the UK’s capital markets. Their exposure to money laundering risks means it is essential they have strong, proactive controls in place. While some firms may be meeting expectations, many may be falling short of minimum regulatory requirements.
“We are sharing our findings so firms can address any gaps in their control frameworks. We are also writing to potentially non-compliant firms to set out improvements they need to make.”
The survey forms part of the FCA’s wider strategy to combat financial crime and is one of several initiatives planned over the next five years to strengthen oversight and raise standards across the financial services sector.
