Regulatory Updates January 2025

 

In this issue we cover:

• Money Laundering Gaps Remain

• Portfolio Letter Wholesale Brokers

• Changes to Open Banking

 

Money Laundering Gaps Remain

The FCA provided an updated analysis following a Thematic Review conducted in 2019. The review focused on wholesale brokers due to the nature of the role they play in facilitating deals in capital markets. The FCA observed that good progress has been made in customer risk assessments, onboarding processes, governance and oversight, and collaboration between trade surveillance and transaction monitoring teams.

However, firms need to improve practices which protect against money laundering. Some of the deficiencies observed were:

• An underestimation of money laundering risks;
• An over-reliance on other firms in the transaction chain for completing appropriate due diligence checks on customers;
• Limited information sharing between firms; and
• Insufficient awareness of the ‘money laundering through the markets’ (MLTM) SARs glossary code.

The FCA’s report: Money laundering through the markets provides updated examples of good and bad practice on enhancing systems, controls and training, practical case studies and areas of focus for firms.

 

Portfolio Letter Wholesale Brokers

On 24 January 2025, the FCA issued a Dear CEO letter to wholesale brokers, unveiling its revised supervisory strategy. This communication comes after an extensive review of the potential risks that brokerages in the wholesale financial markets face. These concerns include prudential risk management, financial crime, remuneration practices, and non-financial misconduct.

The FCA engagement with firms in the last two years has informed the strategy for the next two years with the following areas being central to the new strategy:

• Broker Conduct: Practices such as insider trading and market abuse.
• Culture: The importance of robust policies and procedures for addressing concerns related to non-financial misconduct (NFM).
• Business Oversight: Focus on strategic use of remuneration tools to drive compliance and performance.
• Financial Resilience: Ensuring that firms have solid contingency funding plans and frameworks in place.

The FCA expects firms’ CEOs to swiftly inform the regulator if firms fall short of these standards, and provide details of the corrective measures being implemented to remedy these shortcomings. By the end of March 2025, the FCA expects all firms to have reviewed the contents of this letter with their Board and have formulated a plan of action.

 

Changes to Open Banking

The FCA and PSR have continued to work on informing the development of open banking with the support of a joint steering committee. Open banking in the UK has reached 11.7 million active users and over 22.1 million monthly transactions. 2024 saw advancements in fraud analysis and consumer protections, notably through the introduction of variable recurring payments (VRPs) which enhance consumer control over payments.

This development aligns with national economic goals and has strong backing from regulatory bodies like the FCA and PSR. Open Banking Limited is crucial in furthering these innovations, particularly by setting up an independent central operator to manage VRPs, promising significant strides in 2025 for safer and more efficient payment solutions in e-commerce and beyond.

 

Please feel free to reach out to us at info@objectivus.com if you have any questions or would like clarity on any of the points raised.