Are you prioritising financial crime prevention in time for new government rules?

Financial crime is an ever-present threat in the UK, as criminals continue to look for ways to commit and benefit from illegal activities such as fraud, money laundering, sanctions evasion and corruption.

The UK government’s second Economic Crime Plan was published in 2023 against the backdrop of Russia’s invasion of Ukraine, new transparency laws on UK property ownership, the launching of the Economic Crime Levy and increasingly sophisticated cyber threats.

The three-year plan aims to build on the UK’s efforts to tackle economic crime, with actions spanning both private and public organisations, including HM Treasury, Companies House and the Financial Conduct Authority.

As the government’s plans start to work their way through to legislation and regulation, firms should be reviewing their arrangements

Areas of focus include limiting abuse of UK corporate structures, combatting fraud, improvements to the UK’s anti-money laundering and sanctions regimes and reforms to Suspicious Activity Reports.

New legislation has since been enacted through the Economic Crime and Corporate Transparency Act 2023 (ECCTA) and the FCA recently provided an update on its own three-year strategy, including expectations for firms.

As the government’s plans start to work their way through to legislation and regulation, firms should be reviewing their financial crime arrangements to make sure they capture considerations and obligations under the new regime.

Here’s a roundup of some of the main developments impacting advice firms:

New powers for Companies House

One of the first measures under the ECCTA came into force at the beginning of March, with Companies House starting the roll out of its new powers to request, check, challenge and cleanse information on registered corporations and to share relevant information with security agencies.

The aim is to improve the quality and reliability of Companies House data and tackle the misuse of UK companies to commit economic crime. Companies House will start by prioritising cases where people’s identities have been used without their consent.

Boards must review systems, controls and procedures – not just to meet legal obligations but to protect the interests of their business

Advisers must play their part by obtaining an excerpt of the register and notifying Companies House where they spot material discrepancies between beneficial ownership information held on the register and that provided when undertaking client identity checks and due diligence (as per Regulation 30A of the money laundering regulations).

New test for ‘criminal liability’ and ‘failure to prevent fraud’

Under English law, the ‘Identification Doctrine’ determines how criminal liability is attributed to a company or partnership.

In changes to the Identification Doctrine under the ECCTA, a company or unincorporated partnership of any size will be guilty of an offence if one of its ‘senior managers’ commits the offence while acting within the ‘actual or apparent’ scope of their authority.

It will no longer be necessary to show anyone who was the ‘directing mind and will’ of the company was involved (as under previous law).

Organisations can now be held criminally liable where someone commits a fraud for its benefit

For now, the provisions only apply to specified economic crimes such as bribery, money laundering, fraud and false accounting. However, under the Criminal Justice Bill introduced to parliament in November 2023, this could be expanded to capture other crimes.

The government has also created a new ‘failure to prevent fraud’ offence. This means large organisations can now be held criminally liable where an employee, agent or other associate commits a fraud for the benefit of the organisation and ‘reasonable procedures’ were not in place to prevent it. It does not need to be demonstrated that company bosses knew about the fraud.

Treasury review of money laundering regulations

The Treasury has recently opened a consultation looking at the effectiveness of the current UK money laundering regulations. Areas under review include:

• Trigger points for when customer due diligence is required to make sure they are appropriate and clear.
• Whether a risk-based rather than mandatory approach to enhanced due diligence can be applied for high-risk third countries, subject to increased monitoring by the Financial Action Task Force.
• Broadening the scope of simplified due diligence for certain low-risk business customers.
• Clarifying guidance on ‘source of funds’ checks and checks on persons acting on behalf of corporations.
• How best to support digital identity verification.

FCA expectations

In its recent update, the FCA highlighted some areas regulated firms should be considering in their financial crime arrangements, including:

• Ensuring systems and controls keep up with technology advancements and increased sophistication of criminal groups.
• Sharing intelligence with other firms on how criminals are targeting the sector to prevent them moving around to find and exploit weaker firms.
• Promoting client awareness of potential scams and fraud relevant to the business you undertake.
• Measuring your firm’s outcomes and financial crime prevention effectiveness through the use of data.

Last year, the FCA also published findings following a review of firms’ sanctions screening arrangements, supported by its new sanctions testing tool. It asked firms to review their systems and controls against its findings and to be ready to engage with the FCA on their sanctions testing.

If they haven’t already, now might be a good time for company boards to review their financial crime systems, controls and procedures – not just to meet legal and regulatory obligations but also to protect the interests of their business.

Firms should also continue to monitor upcoming legislative and regulatory changes coming from the government’s Economic Crime Plan.

Julie Hardie is policy consultant at Threesixty Services