FCA speech on action to tackle money laundering in capital markets
On 10 July 2018, the FCA published a speech given by Mark Steward, FCA Director of Enforcement and Market Oversight, on MiFID II and the fight against financial crime. Among other things, Mr Steward commented on how the FCA is acting on the UK’s October 2017 national risk assessment (NRA), which identified an emerging risk of money laundering in capital markets.
The FCA has several investigations underway on a series of capital market transactions that appear to have no market purpose or function. If the FCA’s suspicions are correct, these transactions falsify liquidity, trading volume, and supply and demand in the market, and their purpose is unrelated to the sale and purchase of the underlying investments. As these transactions have cross-border elements, the investigations are being conducted in association with overseas regulators and law enforcement agencies.
The FCA has started a small number of investigations into firms’ systems and controls. It has indicated to these firms that it is looking at whether there has been any misconduct that may justify a criminal prosecution under the Money Laundering Regulations.
Mr Steward noted that the FCA starting criminal investigations against firms relating to AML systems and controls may be surprising. He stated, however, that the potential for criminal prosecutions for systems and control failures under the Money Laundering Regulations is a consequence of the regulations themselves and is giving effect to the purpose and intention of the regulations. Further, the prospect of investigations having a dual track, or potentially a multiplicity of outcomes (from no further action to disciplinary, civil or criminal proceedings) is not new.
He also commented that the fact that a criminal proceeding may be brought doesn’t mean they will be brought. An investigation is primarily a fact-finding mission with any decision about what, if any, action may result being best left until the end. The presumption of innocence will apply, which is why firms should not be identified unless and until any charges are laid. Furthermore, any criminal proceedings would need to satisfy both the evidential test (beyond reasonable doubt) as well as the public interest test, meaning that criminal action is likely to be reserved for the most serious cases.
Mr Steward noted that it is hard to be definitive about what a serious case looks like. However, where the FCA sees what appears to be facilitation of suspected serious crime, in circumstances where plainly obvious checks and questions have not been carried out or asked, it is likely the test of seriousness is passed.
The speech concluded with Mr Steward commenting that the excuse of hindsight won’t protect a lack of rigour and discipline in the way systems and controls operate; nor the need to ensure systems operate according to their purpose; nor the importance of skepticism and rational intuition to challenge and to ask questions that should be asked and to detect.
This document is for general guidance only. It does not contain definitive advice.
Ron is a partner at Cummings Fisher and heads the derivatives and documentation practice. Drawing on his work in private practice with buy-side clients and in house at investment banks, he has broad experience in providing legal advice in relation to derivatives and structured finance transactions, prime brokerage and asset custody arrangements.
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