Spotlight on recent FCA enforcement action and guidance

Posted on |

The FCA has recently fined Monzo Bank Ltd for its inadequate systems and controls which resulted in it failing to identify suspicious activity. In particular, Monzo failed to operate adequate customer onboarding, customer risk assessments and transaction monitoring systems to mitigate the risk of financial crime. 

The FCA summary of the action and the Final Notice can accessed here: FCA fines Monzo £21m for failings in financial crime controls | FCA

Although this enforcement is not necessarily applicable to them, notaries should be aware of:

  • the need to have adequate onboarding procedures which allow for the identification of suspicious activity;
  • when and how to submit a suspicious activity report (SAR); and
  • the information available on the UK Financial Intelligence Unit (UKFIU) website in relation to submitting SARs.

The following points outline key considerations when making a SAR:

  1. SAR volume vs value – notaries should focus on the quality and relevance of their SARs. A smaller number of well-targeted SARs can be much more valuable than a high volume of less-specific reports. Note however that a low volume of SARs suggests either a strong understanding of when it is appropriate to submit a SAR or a lack of awareness regarding reporting obligations or potential suspicious activities.
  2. SAR quality – even if a SAR is not perfect or of the highest quality, it can still be useful in gathering valuable intelligence. However, SARs that are clear, detailed, and well-supported with facts and evidence tend to be more effective and assist law enforcement in their investigations. To improve SAR quality:
  3. provide a clear description of the suspicious activity;
  4. include relevant evidence (e.g., transaction details, dates, amounts);
  5. be as specific as possible about the reason for suspicion; and
  6. review guidance from the National Crime Agency before submitting a SAR –  Suspicious Activity Reports.
  7. The £3,000 exemption – even if the £3,000 exemption (which allows certain transactions to proceed without filing a SAR) applies, it does not eliminate the obligation to submit a SAR if there is any suspicion of criminal activity, such as money laundering or terrorist financing.
  8. Submitting SARs where clients are not taken on – if you choose not to take on a client (for example, after conducting due diligence and finding potential risks), but still suspect suspicious activity, it is your duty to submit a SAR. This ensures that any potential risks are reported to the authorities, even if no business relationship is established.
  9. Provide feedback to the UKFIU– feedback to the UKFIU can be invaluable in improving the SAR process. Notaries are encouraged to provide constructive feedback on the quality of the SAR system, as well as any difficulties or ambiguities in reporting.

Another area highlighted in the Monzo enforcement action was the treatment of politically exposed persons (PEPs). Monzo did not have an internal definition of the categories of customer that amounted to PEPs meaning that they did not consistently and independently adjudicate the various types of PEP alerts they received.

Notaries should read the updated guidance published by the FCA on the treatment of PEPs which outlines how to apply a proportionate and risk-based approach to PEPs, their relatives and close associates for anti-money laundering purposes: FG25/3: Treatment of politically exposed persons | FCA