FCA finds that firms are falling short in their efforts to combat money laundering and the movement of illicit funds

27 January 2025

The FCA has published two reviews in January dealing with different aspects of the fight against money laundering and financial crime. The FCA separately looked at the money laundering defences in place at wholesale brokers and firms’ use of the National Fraud Database to report money mules.

The review of wholesale brokers was a follow up to the thematic review the FCA undertook in 2019 into money laundering risks in the capital markets (Thematic Review 19/4: Understanding the Money Laundering Risks in the Capital Markets). The FCA found that whilst firms have made progress since the 2019 review, in particular with customer risk assessments, onboarding processes and governance, more had to be done by firms to protect against money laundering. 

The FCA reported that firms had an underestimation of the risks of money laundering facing them, an over-reliance on due diligence conducted by others in the transaction chain and limited information sharing between firms. As a result of these shortcomings, the FCA found that wholesale brokers need to enhance their systems, controls, risk awareness and training to guard against money laundering. The review also noted that around 75% of wholesale brokers had not refused or exited a customer or filed a Suspicious Activity Report to the National Crime Agency in the five-year period up to 1 October 2024. Whilst not necessarily indicative of an issue, the FCA reminded brokers of the need to satisfy themselves that their processes were operating effectively. 

In relation to the findings of the report, the joint executive director of enforcement and market oversight at the FCA, Steve Smart, said: “The flow of capital is an essential part of a thriving and competitive market, but tainted cash must not be allowed to pollute the rest…Firms need to keep their controls under review and ensure they are effective against financial crime.

The FCA has also published the findings of a review into firms’ use of the National Fraud Database and money mule account detection tools. The National Fraud Database is a cross-sector database which holds records of fraud and money mule cases in the UK. Money mules are individuals who move the proceeds of crime on behalf of criminals. Firms are encouraged to report money mules they have offboarded to the National Fraud Database, to increase the effectiveness of the database as an intelligence sharing tool in the fight against financial crime. However, the FCA’s review found that firms are routinely failing to report money mules, with only 37% of offboarded mules reported to the National Fraud Database between January 2022 and September 2023. There was considerable divergence amongst firms in the proportion of money mules reported; ranging from a high of 66% of offboarded mules, to one firm which reported just 6%.

The FCA’s review included cases where firms had decided not to file the details to the National Fraud Database, despite having identified the account holder as a mule and having closed their account. In nearly a third of those cases, the FCA disagreed with the firms' decision not to report and in many of those cases the firms were unable to provide justification for their decision. 

The FCA shared the findings of their review with Cifas, the independent not-for-profit organisation which hosts and maintains the National Fraud Database, and the FCA is continuing to engage with the firms included in the review. 

As with the outcome of the review into wholesale brokers, the FCA has highlighted the need for firms to have in place strong and effective systems and controls, which are reviewed on a consistent basis, to prevent and disrupt financial crime. 

Assessing and reducing the risk of money laundering through the markets

Firms’ use of the National Fraud Database (NFD) and money mule account detection tools