FCA highlights gaps in financial crime oversight for corporate finance firms

 

In October, the Financial Conduct Authority (FCA) published a press release alerting to significant shortfalls among corporate finance firms in meeting their obligations under the Money Laundering Regulations 2017.
These findings emphasise the growing regulatory emphasis on financial crime controls in the advisory and corporate finance sector, signalling that firms must act now to shore up their frameworks.

 

Corporate-Finance Firms

The FCA’s survey of around 270 corporate finance firms found:

• 11% of respondents reported no documented business wide risk assessment, despite this being a requirement under the Money Laundering Regulations.
• 10% said they did not retain documented evidence of customer due diligence (CDD).
• 29% of principal firms reported they did not conduct financial crime risk assessments for their appointed representatives (ARs).
• 6% stated they did not monitor their appointed representatives for compliance with financial crime regulations, nor conduct on-site visits or audits.

Despite 97% report financial crime issues to senior management, these findings indicate that while some firms demonstrate strong governance, many remain exposed in both their internal frameworks and across their supervisory responsibilities for ARs.

 

Governance, Oversight and Third Party Risk

The FCA’s findings draw attention to three critical areas for corporate-finance firms:

• Governance and documented oversight: The absence of business wide risk assessments is a direct failure of risk governance and compliance frameworks. Firms must ensure they have senior level accountability, documented processes, and regular review mechanisms in place.
• Appointed representative oversight: Principal firms must monitor ARs’ adherence to financial crime controls, ensure ARs are subject to risk assessments and conduct periodic audits or on-site reviews where appropriate.
• Customer due diligence and monitoring: Firms must retain comprehensive CDD records, regularly refresh those records, and maintain ongoing monitoring of client relationships.

 

Why This Matters for Your Firm

These findings signal that the FCA’s focus on financial crime risk in the corporate finance sector is intensifying. Firms should begin by:

• Conducting a gap analysis of current financial crime controls.
• Reviewing appointed representative frameworks: identify all ARs, ensure each is subject to risk assessment, monitoring, audit and clear governance lines for compliance responsibility.
• Strengthening CDD and transaction monitoring: verify that all client relationships have documented due diligence, that records are retained appropriately and ensure robust ongoing monitoring procedures.
• Embedding senior management accountability for financial crime oversight, making sure that issues raised reach the board or equivalent and are acted upon promptly.

 

Please contact us at info@objectivus.com if you have any questions or require further clarity on the points raised.