Appointed Representative principals sometimes find themselves on the wrong end of an FCA supervisory intervention or enforcement action; but this is rare. It may also be about to change.
Today’s internal FCA press-cuttings pack almost certainly includes a copy of Philip Aldrick’s Times article: “Lack of hard evidence of money laundering doesn’t mean the City is clean”. If that doesn’t draw the FCA’s attention (back) to the sector, nothing will.
In his article, Aldrick does 3 particular things:
- He reminds us that, although no-one really knows how much money is laundered into and through the UK each year, the National Crime Agency believes that it includes “the proceeds of virtually all serious and organised crime in the UK [and] the proceeds of a significant amount of international serious and organised crime” as well; and that it’s probably worth “hundreds of billions of US dollars“;
- He draws our attention to last week’s IMF Technical Note: “United Kingdom Financial Sector Assessment Program: Anti-money Laundering and Combating the Financial of Terrorism “, which describes the FCA’s supervisory framework for higher-risk banks as “adequate“, before expressing two (other) concerns: (i) that it’s not yet clear whether the same framework can be regarded as “adequate” across the entire range of banks; and (ii) that “the backstop on which U.K. authorities depend for ensuring that lower-risk firms are effectively assessing and managing their money laundering risks appears to be limited“;
- He points out how easy it is to register a new company in the UK, and for that company to become an Appointed Representative of an FCA authorized firm, so that it can lawfully engage in regulated financial services activities … and unlawfully engage in money-laundering activities, if that’s what it’s minded to do.
Although the FCA has sometimes taken action against Appointed Representative principals, because their anti-money laundering oversight and control arrangements have been poor, it’s activity in this sector has tended to focus much more on (for example) the principal’s failure to:
- Use a legally adequate contract to appoint its ARs – perhaps surprisingly, legally adequate appointment contracts seem to be rare;
- Ensure that its ARs only engage in regulated activities that are within the scope of (i) the principal’s Part 4A Permission; and (ii) the activities the principal has agreed to allow its AR to carry on; and
- Ensure the quality of its ARs’ advice, record keeping, conflict of interest management, and other arrangements.
If Philip Aldrick is right, an FCA supervisory visit, or a sectoral or thematic review, could be coming to an AR principal near you … very soon.