Banks’ control of financial crime risks in trade finance – FCA

Introduction:

1. This report describes how banks in the UK control money laundering, terrorist financing and sanctions risks (collectively ‘financial crime risks’) in trade finance business and sets out the findings from our recent thematic review.
2. Trade finance is a key component in maintaining a competitive and productive economy. London’s position as a major financial centre could be severely affected if banks engaging in trade finance activity do not have appropriate systems and controls to prevent money laundering, terrorist financing and sanctions breaches from taking place.
3. We expect banks and other firms engaged in trade finance business to consider our findings and examples of good and poor practice and to use them to develop more effective policies and controls where necessary.
4. We will include these examples of good and poor practice in our regulatory guidance, to Financial Crime: A Guide for Firms

Conclusions:

1. Our main conclusion is that the majority of banks in our sample, including a number of major UK banks, are not taking adequate measures to mitigate the risk of money laundering and terrorist financing in their trade finance business. There were some notable exceptions to this, particularly among some of the larger US banks in our sample.
2. Most banks need to conduct significant work to ensure that all financial crime risks are routinely considered when processing transactions. In particular, staff responsible for managing financial crime risks required better training to identify potentially suspicious transactions.
3. More work is required at most banks to ensure high-risk customers and transactions are identified and appropriate action is taken by senior management. In addition, banks generally need to improve management information so that senior management are aware of how financial crime risks are evolving in this type of business.
4. Where banks fell short of our regulatory requirements, we have highlighted the areas where they need to improve. We are also considering where further regulatory action may be required for certain banks in our review.