UK banks, asset managers and insurers ditched a record number of clients in 2019/2020 and reported an increased level of suspicious activity to law enforcement, highlighting the caution inspired by new regulations and high fines.
The Financial Conduct Authority said in its latest financial crime monitor that businesses “exited” 761,437 clients in the 2019/2020 financial year, more than double the total dropped in 2017/2018, when the regulator first reported the data.
Meanwhile, the number of suspicious activity reports filed by companies with the National Crime Agency grew almost 20 per cent to 480,202. SARs are triggered when financial services firms believe a transaction may breach money laundering rules.
The data were based on 2,000 responses from firms with a turnover of more than £5m regulated by the FCA. The report was published on the same day that lender NatWest became the first bank to plead guilty to money laundering offences in the UK.
“These figures do show a material shift in the risk appetite of firms to take on or to continue to offer financial services to those clients they deem to pose an unacceptably high risk of involvement in financial crime,” said Sara George, from law firm Sidley Austin. “The very real risk of prosecution is now an effective deterrent and significantly changes the balance.”
Diego Ballon Ossio, from law firm Clifford Chance, said the trends also reflected new money laundering rules introduced in June 2017 and January of 2020. “With each regime firms would have had to scrub their systems and provide staff training etc. So it seems natural that as the frameworks become more sophisticated the sensitivity for reporting increases.”
The number of staff working in financial crime roles across the companies fell to 17,403 full time equivalents, from 18,000 in 2018/9. The FCA estimated that the current headcount, coupled with other employment costs, means the companies spend about £1.1bn a year on staffing their financial crime teams.
The FCA report also showed that almost half of the suspicious activity reports came from three firms. Ballon Ossio said that could be because these firms have “oversensitive internal screen policies”. The report did not show how many of the reports were ultimately found to have caught money laundering.
Retail banking and lending accounted for the vast majority of SARs, followed very distantly by wholesale financial markets.
The data also showed a fall in the number of politically exposed persons on the books of UK financial institutions to 89,000 in 2019/20 from 111,000 in 2017/2018. The FCA said this was partly because of revised guidance on who should be considered a politically exposed person.
UK financial firms ditch record number of clients in 2019/20
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