Small banks and insurance intermediaries exposed to fraud and corruption, regulator finds

14th November 2014


The City watchdog has uncovered ‘widespread weaknesses’ in small banks and insurance intermediaries that exposed them to bribery and financial crime.

The Financial Conduct Authority (FCA) has reviewed small banks and commercial insurance intermediaries and found that while there were some examples of good practice there were ‘significant shortcomings at other firms’.

In the review of 10 commercial insurance intermediaries and 21 banks, 10 of the firms – five of each – were found to have fallen short of the rules.

The regulator found ‘significant and widespread weaknesses in most banks’ anti-money laundering systems and controls, and in some banks’ sanctions controls’.

A third of banks had inadequate resources and staff often had weak knowledge of money laundering risks, with some overseas banks struggling to reconcile their group policies with the higher UK requirements. Several of the banks have replaced their money laundering reporting officers since the review and four firms have temporarily restricted their business while they correct weaknesses in their controls.

The FCA has told three banks to undertake an independent review of their systems and controls and two have been referred to the enforcement division for investigation.

In the intermediary space, controls failed to manage bribery and corruption risk effectively. Although policies on remuneration, hospitality and training had improved, bribery and corruption risk assessment were often too narrow. Half of the third-party and client files reviewed were inadequate and senior management oversight was often weak.

Tracey McDermott, FCA director of enforcement and financial crime, said: ‘Firms must take their responsibility to reduce the risk of financial crime seriously. Significant improvements are still required in this area.

‘To do that successfully requires firms to use their judgement and common sense. That is not about box ticking or wholesale de-risking. It is about firms getting the basics right – understanding their customers, the risks they pose and managing those risks proportionately and sensibly.’


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