Broker’s AML Review By FCA

Report Name: Money Laundering Through Markets
Review: Broker’s AML Gaps
Publishing Date: 23 January 2025
Region: United Kingdom
Agency: Financial Conduct Authority

FCA Urges Wholesale Brokers to Strengthen AML Controls and Risk Awareness

The UK’s Financial Conduct Authority (FCA) has highlighted the need for wholesale brokers to enhance their anti-money laundering (AML) systems, controls, risk awareness, and training. This call to action follows the regulator’s latest review, which assessed how effectively these firms are mitigating financial crime risks.

The Role of Wholesale Brokers in Capital Markets

Wholesale brokers play a crucial role in capital markets by facilitating high-value transactions. Their position in the financial ecosystem makes them potential targets for illicit financial activities, underscoring the importance of stringent AML frameworks. Recognizing their significance, the FCA focused on this sector to evaluate compliance with AML regulations and identify areas for improvement.

Key Findings from the FCA Review

Since the FCA’s 2019 Thematic Review, there have been notable improvements in several areas, including:

• Customer risk assessments – Firms have enhanced their ability to assess client risks.

• Onboarding processes – More robust due diligence procedures are in place.

• Governance and oversight – Strengthened internal controls have improved monitoring mechanisms.

• Collaboration between trade surveillance and transaction monitoring teams – Enhanced cooperation has led to better detection of suspicious activities.

Despite these advancements, the FCA identified significant weaknesses that need to be addressed to bolster AML defenses:

• Underestimation of money laundering risks – Firms often fail to fully recognize the financial crime threats they face.

• Over-reliance on third parties – Many firms depend too heavily on others in the transaction chain to conduct due diligence.

• Limited information sharing – The lack of communication between firms hampers the detection and prevention of suspicious activities.

• Insufficient awareness of SAR glossary codes – Firms are not adequately leveraging Suspicious Activity Reports (SARs) and their glossary codes to flag potential money laundering risks.

Regulatory Expectations and Industry Collaboration

Steve Smart, Joint Executive Director of Enforcement and Market Oversight at the FCA, emphasized the importance of integrity in financial services:

“The flow of capital is an essential part of a thriving and competitive market, but tainted cash must not be allowed to pollute the rest. For the UK financial services industry to grow, investors and institutions need to have trust in it. Integrity is vital for that, and firms play a key role in helping to detect criminal activity.”

To address these gaps, the FCA will continue to engage with firms, market participants, and law enforcement agencies. The regulator aims to improve the industry’s understanding of emerging risks, encourage better information sharing, and promote innovation in transaction monitoring.

Strengthening AML Frameworks in Wholesale Brokerage

Given the FCA’s findings, firms must take proactive steps to enhance their AML controls. This includes:

• Conducting thorough risk assessments to understand exposure to financial crime threats.

• Implementing robust due diligence practices instead of relying on third parties.

• Improving internal and external information-sharing mechanisms.

• Enhancing staff training on identifying and reporting suspicious activities.

By addressing these concerns, wholesale brokers can contribute to a more transparent and secure financial environment, reinforcing trust in the UK’s financial markets.

The FCA’s report serves as a crucial resource for firms operating in capital markets, offering guidance on strengthening AML measures and preventing financial crime. As regulatory scrutiny intensifies, firms must remain vigilant, continuously evaluating and improving their compliance frameworks to stay ahead of evolving risks.

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