E-money laundering?

Transparency International has turned the spotlight on the money laundering risks posed by the UK electronic money sector. Its report suggests that, of the 261 authorised e-money institutions in the UK, 100 have money laundering “red flags” relating to their owners, director or activities.

The report draws on publicly available information which means that – although it highlights risks posed by EMIs – the actual scale of their use by money launderers is unclear. Even so, the report will increase the pressure on the FCA to be seen to take action where it identifies failings, increasing enforcement risks for payments firms.

Transparency International calls on the FCA to increase its oversight of EMIs, conduct a thematic risk review of the sector and a targeted audit of AML controls at EMI firms marketing their services to high-risk markets. It also suggests that the Senior Managers Regime should apply to EMIs, something which the FCA has already recommended.

In response, e-money and payments firms should prioritise proactively addressing the concerns raised in the report. For example, firms could review their due diligence processes for higher risk customers, retrain employees on financial crime risks, or seek external assurance of the effectiveness of current AML controls.

The FCA has already called on firms to improve compliance standards and has just concluded its first corporate criminal prosecution under the Money Laundering Regulations, as well as adding to its long-list of regulatory outcomes with today’s settlement with HSBC. As noted in our payments horizon report 2022, some e-money and payments institutions will need to start annual financial crime reporting to the FCA from next year. In keeping with its ambitions to be a data-led regulator, this additional information should help the FCA to focus its supervision where it is needed the most.