UNDERSTANDING THE MONEY LAUNDERING RISKS IN THE CAPITAL MARKETS

The FCA in the UK has published this thematic review which highlighted a number of significant weaknesses in AML controls applied across the industry.  A review of 19 firms was involved, and the FCA concluded that there is a general lack of deep understanding of money laundering risk to the capital markets.  Complex cross border deals made up of multiple parties to a transaction provide numerous loopholes and weaknesses for money launderers to exploit.  The FCA recommends that all market players start taking a full risk-based approach to money laundering in the context of the wider exposure they are liable to.  It appears that the FCA is considering a supervisory response.  The Annex to the review contains examples of typologies based on risks found in the sector, and which include helpful and simplified diagrams.  The Annex also identifies a number of features that could serve as red flags, or at least prompt further questions – remote booking of trades between group entities; pre-arranged trading; instructions or involvement from third parties; ‘free of payment’ asset transfers; non-standard settlement arrangements uneconomic or irrational trading strategies of a customer; unusual trading patterns, such as: counterparty concentration, unusual win/loss rates or flat/neutralising activity, and no trading on an account.

https://www.fca.org.uk/publication/thematic-reviews/tr19-004.pdf

Author: raytodd2017

Chartered Legal Executive and former senior manager with Isle of Man Customs and Excise, where I was (amongst other things) Sanctions Officer (for UN/EU sanctions), Export Licensing Officer and Manager of the Legal-Library & Collectorate Support Section

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