Financial crime regulatory developments: March update

Regulation will be cut back as the government attempt to drive economic growth. The Payment Systems Regulator (PSR) will be abolished as the latest step in reducing the burdens on business. The PSR – which looks after payment systems like Faster Payments and Mastercard – will mainly be consolidated into the Financial Conduct Authority, making it easier for firms to deal with one port of call. It follows complaints from businesses that the regulatory environment was too complex – with payment system firms having to engage with three different regulators, costing them time, money and resource.

Impact: The likely impact of disbanding the PSR is simplified regulatory interactions, as firms will have one less regulator to liaise with as part of supervision activities.

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HM Treasury’s 12^th report on AML/CTF supervision, related to activities from the 2023-4 financial year. A summary of the topics covered:

• Preparation has begun for FATF’s Mutual Evaluation Review of the UK, set to be published in 2028.
• Work on the next AML/CTF National Risk Assessment is underway, set to be published in 2025. The Treasury is also in the process of updating the proliferation financing National Risk Assessment.
• The FCA’s view is that retail banking, e-money, wholesale banking, wealth management and cryptoasset firms remained particularly vulnerable to financial crime risks.
• The FCA are using an in-house data analysis tool tapped into REP-CRIM submissions to analyse large amounts of data to identify outliers and emerging themes to drive supervisory focus.
• Increased FCA resources dedicated to AML/CTF monitoring activity between years 2022/23-2023/24:
  • 53 to 77 FTE dedicated AML/CTF staff.
  • £4m to £6m on estimated expenditure of AML/CTF monitoring. 
  • 231 to 816 desk-based reviews.

Impact: As there is a focus on using REP-CRIM data as part of supervision efforts, firms should review their last submissions and validate the data reported to ensure it is accurate, complete and up to date. Firms in e-money, wholesale and retail banking, wealth management and crypto sectors should remain alert to financial crime threats and emerging risks, as they operate in higher risk sectors.

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This is a roadmap of changes to Companies House taking effect as part of the EC&CT Act. In summary:

• From 4^th March 2025, received increased power to analyse and share data with law enforcement agencies and other government departments.
• By Autumn 2025, new ID&V requirements will take effect, and all Directors and PSC will need to verify their identity at the point of incorporation. There will be a transition period of 12 months for existing companies (requirement will begin when their confirmation statement is due).
• Reforms to limited partnerships will take place no sooner than spring 2026.

Impact: It is important that companies planning on becoming incorporated (as well as existing companies who have not verified their Directors and PSC) are aware of upcoming ID&V requirements and taking necessary action.

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The FCA have developed a synthetic dataset designed to support fraud detection innovations while safeguarding consumer privacy. The data is based on 20,000 synthetic individuals across a 2-year timeline. The synthetic data includes individual/business identities, bank account details, phone call and SMS data, and instances of fraud.

By the end of 2024, the dataset – launched in September 2023 – had been accessed over 135,000 times, supporting 65 users across 42 projects, including 20 projects focused on fraud prevention. The dataset remains available, with future iterations planned as part of FCA Innovation’s ongoing initiatives.

Impact: Regulated firms are still able to access this synthetic data to develop and enhance its fraud controls. Its initial success reflects how useful this data has been for firms, whilst also prioritising the safeguarding of consumer privacy.

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There is a dedicated chapter on financial crime and market abuse priorities:

• Increased trend towards investment in private assets requires greater management of risks related to complex ownership structures – KYC processes are key.
• Supervisory focus on AML controls in private markets funds.
• Expectation that market abuse controls are robust, providing a vital first line of defence, to discharge MAR obligations.

Impact: Firms operating within the asset management sector should complete a gap analysis to ensure that any potential gaps in financial crime controls, or areas of ineffectiveness, are addressed.

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Summary: This is a novel decision notice published by the FCA: a declined crypto asset application. The decision notice outlines gaps in controls related to the firm’s business-wide risk assessment, customer due diligence, enhanced due diligence, and suspicious activity reporting processes.

Impact: Clients hoping to become crypto registered should prioritise enhancing the maturity of its financial crime controls, especially those specific controls noticed in the decision notice.

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The FCA has launched its new 5-year strategy with four pillars:

• Be a smarter regulator; predictable, purposeful and proportionate. The FCA will improve its processes and embrace technology to become more efficient and effective.
• Support sustained economic growth, by enabling investment, innovation and ensuring the continued competitiveness of the UK’s world-leading financial services.
• Help consumers navigate their financial lives by working with industry to boost trust, product innovation and ensuring the right information and support is available for people to take financial decisions.
• Fight financial crime, focusing on those who seek to use the fact they are regulated to do harm. It will go further to disrupt criminals and support firms to be an effective line of defence.

Impact: Firms should continue to prioritise financial crime controls and resourcing allocations, as this will continue to be a focus area for the FCA as part of its 5-year strategy.

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Summary: OFSI guidance for high value dealers and art market participants. From 14 May 2025, the list of ‘relevant firms’ subject to financial sanctions reporting requirements will be expanded to include high value dealers. Similarly, from 14 May 2025, art market participants will be added to the list of ‘relevant firms’ subject to financial sanctions reporting requirements. This guidance provides examples of common evasion practices and a list of risks for high value dealers.

Impact: High value dealers and art market participants should be aware of changes to financial sanctions reporting requirements taking effect from 14^th May 2025. Similarly, the typologies outlined within the guidance should be considered as part of firms’ business-wide risk assessments for those operating in this sector.

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OFSI enforcement action against three charities, exercising its Disclosure powers to “name and shame” these firms. This Disclosure relates to the failure of the charities to provide information or engage with OFSI when they were required to do so. This serves as a reminder that firms are obliged to respond to RFIs within a reasonable timeframe and ensure that the contact information listed on Companies House and Charities Commission is accurate and up to date.

Impact: Procedural guidance around regulatory engagement and processing requests from regulators should exist. These procedures should clearly outline who is responsible for dealing with such requests.

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The monetary penalty relates to six payments made by HSF Moscow with a collective value of £3,932,392.10 to Designated Persons subject to an asset freeze. In committing the breaches, the firm made funds directly available to sanctioned entities. The payments, which took place over a period of seven days as the firm wound down its Russian offices, demonstrated a pattern of failings. As a result of these breaches, OFSI has imposed a penalty of £465,000 on HSF Moscow.

Impact: Firms should review their screening processes, watchlist management controls, as well as investigation and operational practices to ensure that Designated Persons are appropriately identified, and funds are not made available to these parties.

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The Annual Review 2023-24 provides an overview of OFSI’s activities and achievements over the past financial year. High-level summary:

• OFSI released 161 notifications on its popular e-alert service providing updates on changes to regulations, guidance and the persons and entities sanctioned by the UK.
• OFSI conducted 105 outreach engagements, including participation in 20 conferences.
• In 2023-24, 564 designated persons were added to the consolidated list by OFSI, taking the total number of those subject to financial sanctions at the end of March 2024 to 3,463 designated individuals, 853 entities, and 15 ships, totalling 4,331 entries across 35 regimes.
• OFSI’s increased to 135 members of staff during 2023-24, increasing resources across all functions, with a particular focus on licensing and enforcement. Resource in OFSI’s licensing and enforcement teams increased fourfold; and its guidance and engagement function doubled in size.
• OFSI progressed a substantial number of investigations during 2023-24, recording 396 cases and closing 242, more than tripling the number of closed cases from the previous year. An example of enforcement action taken by OFSI is the ‘Wise disclosure’ in August 2023. A number of enforcement cases are expected to result in a public outcome in 2025.

Impact: In line with increased OFSI resources dedicated to supervision and enforcement, firms should ensure that they continue to allocate resources and regularly reviews the effectiveness of its sanctions controls and processes.

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The Opacity in Real Estate Ownership index assesses and ranks 24 jurisdictions, based on the scope/availability of their real estate data, as well as the strength of their AML frameworks in relation to the real estate sector. Key highlights:

• South Africa is the best performer on the index due to the data its government collects on real estate transactions and supervision efforts.
• Australia, South Korea and United States are among the worst performing countries. Although Australia has recently passed historic AML legislation relevant to the real estate sector, this does not come into force until 2026.
• Lack of third-party oversight: in Australia, China, England & Wales, Japan, Türkiye and the UAE property purchases can be made without the involvement of a third party (i.e. estate agent) meaning no money laundering screening necessarily takes place on the transaction. Russia and UAE even allow cash-based transactions for property purchase, meaning there isn’t even transaction monitoring oversight from a financial institution.
• The index reveals that anonymous ownership of real estate is still taking place, primarily through companies not having to reveal their true owners when registering properties. Some of the countries who do require domestically incorporated companies to disclose their real owners, continue to allow real estate investments by foreign companies to remain secretive.

Impact: Firms may choose to consider this report as part of jurisdictional risk assessments, particularly for clients with a strong nexus to the real estate sector. Following a risk-based approach, it may be appropriate to implement additional SoW/SoF measures for customers based in countries where cash-based transactions are permitted for property purchase, or where third-party oversight is not required.

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