In the fight against financial crime, the involvement of senior management is vital for risk mitigation and compliance. The UK’s Financial Conduct Authority (FCA) acknowledges the importance of their role in addressing financial crime risks and Beyond MI will be looking more closely into what good looks like.
Senior Management’s Role in Governance:
According to the FCA’s Financial Crime Guide (FCG) 2.2.1, senior management should actively engage in a firm’s approach to addressing financial crime risk. Senior management is expected to take clear responsibility for managing financial crime risks, treating them on par with other business risks.
Beyond MI Considerations:
Evidence of senior management’s active involvement in the firm’s approach to addressing financial crime risk can be evidenced through:
- Committee Structure - having a committee structure that is aligned to the firm’s risk categorisation model. Each risk category should have a distinct first line committee that has appropriate seniority and stature within the firm.
- Governance – a financial crime risk committee structure enables fast, efficient decision making, and supports with clear routes for escalation and risk reporting to senior management and the Board.
- Risk Culture – the governance model underpins the risk culture and good risk behaviours, with each committee responsible for managing the risk and control environment within its remit.
- Accountable Executives - provide leadership, ensure regulatory compliance, manage risks, build stakeholder confidence, establish governance structures, enable strategic decision-making, foster collaboration, and drive continuous improvement. Their role is crucial in safeguarding the firm against financial crime threats and maintaining its integrity and reputation.
- Frameworks – financial crime risk frameworks are crucial for firms to effectively manage and mitigate the risks associated with financial crime. They provide a structured approach to identifying, assessing and addressing potential threats. Examples of frameworks include a risk management framework, a policy framework, a three lines of defence model and a risks and controls framework.
Senior Management’s Role in Anti-Money Laundering Measures:
The guidance in FCG 2.2.1 on governance in relation to financial crime states that it is expected that senior management take responsibility for the firm’s anti-money laundering (AML) measures. Which includes knowing about the money laundering risks to which the firm is exposed and ensuring that steps are taken to mitigate those risks effectively.
Regulation 21(1)(a) of the Money Laundering Regulations requires that where appropriate one individual who is a member of its board of directors or of senior management, needs to be appointed as the officer responsible for compliance with the regulations. Regulation 21(3) also requires the appointment of a nominated officer. However, the FCA recognises that the same individual can hold the roles of the nominated officer, and the Money Laundering Reporting Officer (MLRO).
Beyond MI Considerations:
Having an MLRO and Nominated Officer in place is not only a regulatory requirement but also a fundamental element of a robust financial crime risk management framework. They help firms maintain integrity, stability and trust while safeguarding the firm from the detrimental consequences of financial crime. To support the MLRO and Nominated Officer in their roles it is important to consider implementing:
- Accountable Executives - Accountable executives play a key role in setting the tone from the top and establishing a culture of compliance within the organisation. They will lead first line judgement of risk appetite for major Financial Crime cases and risk decisions in their area, with guidance and support from the MLRO.
- An MI Framework – having an established management information (MI) framework in place to support in providing insight into the firm’s financial crime inherent risks and oversight into the effectiveness of the financial crime risk control environment. Financial crime MI helps to assess effectiveness of financial crime processes and controls, record gaps and take timely action in relation to any highlighted risks.
- A Reporting Framework – having targeted risk reporting to appropriate audiences, covering all levels of the firm, from high level reporting to the Board & Exco through to more detailed reports produced specifically for supporting the MLRO’s oversight of the financial crime risks.
Senior Management’s Anti-Bribery and Corruption Responsibilities:
Senior management bears the responsibility of ensuring that the firm conducts its business with integrity and tackles the risk that the firm, or anyone acting on its behalf, engages in bribery and corruption. A firm’s senior management should therefore be kept up to date with, and stay fully abreast of, bribery and corruption issues. This responsibility aligns with a firm’s commitment to maintaining ethical standards and preventing illicit activities that could tarnish its reputation.
Beyond MI Considerations:
Senior management’s awareness and understanding of bribery and corruption issues are essential for promoting a culture of integrity, compliance, and ethical conduct throughout the firm. It ensures that the company operates responsibility, mitigates risk effectively, and upholds its commitment to ethical business practices. To support senior management with this responsibility, firms should consider:
- Tone from the Top – The tone from the top is instrumental in shaping an ethical culture within the firm. Senior management’s commitment to addressing bribery and corruption issues sets the standards for employees, encouraging ethical behaviour throughout the company.
- Risks and Controls – Being fully informed about bribery and corruption risks helps senior management to identify vulnerabilities and implement measures to prevent, detect, and respond to unethical practices.
- Anti-Bribery & Corruption (ABC) MI – Having a tailored suite of management information on bribery and corruption risks provides senior management with valuable insights and data that can help them make informed decisions and effectively manage the bribery and corruption risks of the firm. It can support with the early detection of issues and allows for prompt intervention and implementation of preventive measures, reducing the risk of severe consequences and damage to the firm’s reputation.
- Risk Assessment – An ABC risk assessment provides firms with a clear understanding of their bribery and corruption risks, enabling them to implement appropriate measures to prevent and detect corrupt practices. It is a critical step in building a robust anti-corruption compliance programme and fostering a culture of integrity and ethical conduct within the firm. An ABC risk assessment encompasses various elements, including identifying bribery and corruption risks throughout the firm, enhancing the firm’s understanding of regulatory compliance requirements, evaluating the corruption risks linked to third-party relationships, and pinpointing business areas where employees might encounter higher risks of bribery and corruption incidents.
In conclusion, the Financial Crime Guide is helpful however, every firm needs to take the high-level guidance and apply it to its own structures. We have set out above how firms can start to do this, but we are here to support you further if you need a helping hand. Contact us for more information on how we can support you with your governance frameworks.