London is the global leader for raising capital; Its infrastructure, people, breadth of financial services and even the GMT zone itself ensures companies and investors from around the world can intersect. It’s stock exchanges enable companies of all shapes and sizes to float and raise capital, and investors to buy shares. However, with its diverse and global character comes risk.

In consideration of these matters, last week saw the FCA publish its thematic review of London’s capital markets to improve understanding of the Money Laundering risks.

• https://www.fca.org.uk/publication/thematic-reviews/tr19-004.pdf

In consideration of the FCA report the following  are some highlights

1. Although good governance has been a long-held principle in the markets, the findings of the FCA’s review have highlighted several significant weaknesses in AML control applied across the industry and asked for a response to improve processes.
2. Following a review of 19 firms, the FCA concluded that there is a general lack of deep understanding of money laundering risk to the capital markets. Complex cross border deals made up of multiple parties to a transaction provide numerous loopholes and weaknesses for money launderers to exploit. Firms tend to only look at the part of the transaction they are directly concerned with rather than the whole picture, and the main governance focus is on market abuse issues rather than money laundering.
3. The FCA recommends that all market players start taking a fully risk-based approach to money laundering in the context of the more extensive exposure, carrying out thorough customer due diligence that focuses on not just their customer, but also the underlying customers and beneficial owners.
4. It also criticises the general lack of transaction monitoring in the sector. Demanding that Capital Markets beef up their AML controls, the FCA is considering a supervisory response moving forwards.