Small UK financial services firms are largely unaware of what they need to do to comply with the FSA regime. Some small businesseseven believe the term “financial sanctions regime” refers to potential penalties which the FSA may levy, rather than their own data screening.
According to a report by the Financial Crim and Intelligence Division of the FSA, two-thirds of small firms believe customer due dilligence is the same as Her Majesty’s Treasury screening. Many do not believe sanctions screening applies to them because they do not hold any client money, make payments, or deal in low-risk products.
Two-thirds did claim to have formal written policies and procedures in place. However, visits by the FSA have shown that only have actually have such policies. Confusion between anti-money laundering checks and screening against the HMT list is often to blame. Even among those which were screening, none had ever identified a target match, suggesting their procedures are not comprehensive.
“Small size does not give you a free pass when it comes to complying with legal or regulatory requirements,” says Simon Pearson, director of compliance screening at Datanomic. “Many small firms are relying on rudimentary Know Your Customer checks at client take-on only, and have no provision for regular, ongoing monitoring of their customers against Government Sanctions lists, money laundering or terrorist financing databases. The FSA’s report concludes that the majority of small firms are exposed to significant business and compliance risk because they lack the systems and controls to carry out regular periodic screening.”