Are you prioritizing financial crime prevention ahead of new government regulations?

Financial crime is an ever-present threat in the UK as criminals continue to look for ways to commit and profit 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 introduction of an economic crime tax and increasingly sophisticated cyber threats.

The three-year plan aims to build on the UK’s efforts to tackle economic crime and cover action across both private and public organizations including HM Treasury, Companies House and the Financial Conduct Authority.

As government plans begin to make their way into legislation and regulation, companies should review their arrangements

Areas of focus include reducing abuses in UK corporate structures, tackling fraud, improvements to the UK’s anti-money laundering and sanctions regimes, and reforms to suspicious activity reports.

Since then, new rules have been introduced under the Economic Crime and Corporate Transparency Act 2023 (ECCTA), and the FCA recently provided an update to its own three-year strategy, including its expectations for firms.

As the government’s plans begin to make their way into legislation and regulation, companies should review their financial crime arrangements to ensure they address the issues and obligations arising from the new regime.

Here is a summary of some of the major changes affecting consulting firms:

New powers of Companies House

One of the first measures under ECCTA came into force in early March, when the Companies House began implementing its new powers to request, check, challenge and clear information on registered corporations and 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 prioritizing cases where people’s identities have been used without their consent.

Boards must review systems, controls and procedures – not only to meet legal obligations, but also to protect their company’s interests

Advisers must play their part by obtaining an extract from the register and notifying Companies House if they notice material discrepancies between the beneficial ownership information held on the register and the information provided when carrying out client identity checks and due diligence (under section 30A of the Money Laundering Regulations ).

New test for “criminal liability” and “failure to prevent fraud”

Under English law, the “Doctrine of Identification” governs how criminal liability is attributed to a company or partnership.

Under the changes to the Identification Doctrine under ECCTA, a company or unincorporated partnership of any size will be guilty of an offense if one of its “senior managers” commits an offense while acting within the “actual or apparent” scope of his or her authority.

It will no longer be necessary to prove that anyone who “directed the mind and will” of the company was involved (as was the case under the previous law).

Organizations can now be held criminally liable if someone commits fraud for their benefit

For now, the regulations only cover specific economic crimes, such as bribery, money laundering, fraud and false accounting. However, under the Criminal Justice Bill tabled in Parliament in November 2023, it could be extended to cover other crimes.

The government also created a new offense for “failure to prevent fraud.” This means that large organizations can now be held criminally liable if an employee, agent or other collaborator commits fraud for the benefit of the organization and there are no “reasonable procedures” in place to prevent it. It is not necessary to prove that the company’s managers knew about the fraud.

Treasury review of money laundering regulations

The Treasury recently launched a consultation to review the effectiveness of the UK’s current money laundering laws. Areas to be reviewed include:

• Trigger points where customer due diligence is required to ensure they are appropriate and clear.
• Can a risk-based rather than mandatory approach to enhanced due diligence be used for high-risk third countries, subject to increased monitoring by the Financial Action Task Force?
• Expanding the scope of simplified due diligence for certain low-risk business clients.
• Clarification of guidance on ‘source of funds’ screening and screening of persons acting on behalf of corporations.
• How to best support digital identity verification.

FCA expectations

In its latest update, the FCA highlighted certain areas that regulated firms should consider in their financial crime arrangements, including:

• Ensuring that systems and controls keep pace with technological progress and the increasing sophistication of criminal groups.
• Sharing information with other companies on how criminals are targeting this sector to prevent them from moving around to find and exploit weaker companies.
• Promoting customer awareness of potential scams and scams related to your business.
• Measure your company’s performance and effectiveness in preventing financial crime through the use of data.

Last year, the FCA also published the findings of a review of firms’ sanctions monitoring arrangements, supported by a new sanctions testing tool. It asked firms to review their systems and controls for the findings and to prepare to engage with the FCA on sanctions testing.

If they have not already done so, now may be a good time for company boards to review their financial crime systems, controls and procedures – not only to meet their legal and regulatory obligations, but also to protect their company’s interests.

Businesses should also continue to monitor upcoming legislative and regulatory changes arising from the government’s economic crime agenda.

Julie Hardie is a policy consultant at Threesixty Services