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The Financial Crime Guide MI Guidance

The Financial Conduct Authority (FCA) in the United Kingdom plays a crucial role in safeguarding the integrity of the financial system and protecting consumers from financial crime. As part of its comprehensive framework, the FCA provides guidance on financial crime prevention in the Financial Crime Guide (FCG). This insight blog outlines the importance of Management Information (MI) in the FCG.


Understanding Management Information (MI)

Management Information refers to the data, analysis, and reporting that provides senior management with comprehensive insights into the financial crime risks faced by their organisation. It acts as a powerful tool for decision-making, enabling management to understand, assess, and address risks, as well as align strategies with regulatory expectations.


What does the FCG say about MI?

Section 2.2.2 of the FCG states:

MI should provide senior management with sufficient information to understand the financial crime risks to which their firm is exposed. This will help senior management effectively manage those risks and adhere to the firm’s own risk appetite. MI should be provided regularly and ad hoc, as risk dictates. Examples of financial crime MI include:

  • An overview of the financial crime risks to which the firm is exposed, including information about emerging risks and any changes to the firm’s risk assessment.
  • Legal and regulatory developments and the impact these have on the firm’s approach.
  • An overview of the effectiveness of the firm’s financial crime systems and controls.
  • An overview of staff expenses, gifts and hospitality and charitable donations, including claims that were rejected.
  • Relevant information about individual business relationships, for example:
    • The number and nature of new business relationships, in particular those that are high risk.
    • The number and nature of business relationships that were terminated due to financial crime concerns.
    • The number of transaction monitoring alerts.
    • Details of any true sanction hits.
    • Information about suspicious activity reports considered or submitted, where this is relevant.

MI may come from more than one source, for example the compliance department, internal audit, the MLRO or the nominated officer.


Why are the examples of MI called out in the FCG important?

Below, Beyond MI have explored why each example of MI specified in the FCG needs to be considered within financial crime risk reporting.

  • Comprehensive Risk Assessment
    MI should be used to provide senior management with a holistic overview of the financial crime risks to which their firm is exposed. This could include information on emerging risks, evolving patterns of financial crime, and any changes to the firm’s risk assessment. Such comprehensive risk assessment enables management to develop robust strategies and allocate resources appropriately.
  • Legal and Regulatory Developments
    The financial crime landscape is continuously evolving, with new laws and regulations being introduced regularly. MI should include updates on legal and regulatory developments and their impact on the firm’s approach to financial crime prevention. This ensures that the firm’s systems and controls remain aligned with changing compliance requirements.
  • Effectiveness of Financial Crime Systems and Controls
    MI should provide an overview of the effectiveness of the firm’s financial crime systems and controls. This overview should include evaluating the scope and performance of the control environment, and assessing processes such as transaction monitoring, customer due diligence, sanctions screening and suspicious activity reporting, to name a few. By identifying strengths and weaknesses, management can make informed decisions to enhance the effectiveness of their financial crime risk management.
  • Monitoring Staff Expenses and Gifts
    MI should include information about staff expenses, gifts, and hospitality. This covers the monitoring of claims, including rejected claims, to ensure transparency and identify any potential risks related to bribery, corruption, or conflicts of interest. By having visibility into these areas, firms can maintain ethical standards and mitigate the risk of financial crime.
  • Business Relationship Monitoring
    MI should provide relevant information about individual business relationships, such as the number and nature of new business relationships, high-risk relationships, and relationships terminated due to financial crime concerns. Additionally, it should include as a minimum, details about transaction monitoring alerts, true sanction hits, and information about suspicious activity reports considered or submitted. This MI would enable management to identify and respond promptly to potential risks.


Further Beyond MI Considerations

In addition to the suggested MI the FCG has specifically called out, it would be beneficial for firms to also consider:

  • Risk Appetite Thresholds
    Risk appetite thresholds applied to risk insight measures are essential for firms as they provide clear boundaries and guidance for decision-making. These thresholds define the amount and type of risk a firm is willing to accept or tolerate in pursuit of its strategic objectives. A breach of an Executive level or Board level risk appetite limit (red) means the firm is operating outside its risk appetite and delivery of strategic objectives are at threat. Reaching the firm’s trigger (amber) serves as an early warning that they are performing close to their appetite limit. Having these thresholds in place allows the firm to implement remedial actions to return the measure back to within appetite (green).
  • Data Dictionary
    A data dictionary is a critical component of a management information (MI) framework for financial crime risk reporting. It serves as a centralised reference that provides detailed information about the various measures and data elements used in generating MI reports. A typical data dictionary would include: the metric name; definition; parameters for data extraction; source system; data owner; and audience. It promotes a shared understanding of the metrics, their definitions, and the data sources, leading to better risk management practices and more effective responses to potential financial crime threats. Additionally, a data dictionary supports data governance efforts by streamlining data validation, documentation, and auditing processes.
  • Data Quality Framework
    A data quality framework is a structured and systematic approach used by firms to assess, measure, manage, and improve the quality of their data. It provides a set of guidelines, methodologies, and processes to ensure that data is accurate, complete, consistent, and reliable. The goal of a data quality framework is to enhance the overall trustworthiness and usability of data and MI, enabling firms to make informed decisions, comply with regulations, and achieve their business objectives more effectively.


Conclusion

In conclusion, the Financial Crime Guide recognises the role of MI in helping firms combat financial crime effectively, however, it only provides a high-level overview of what is required. MI is needed to provide senior management and decision makers with timely, relevant, and comprehensive information, enabling them to assess and manage financial crime risks proactively. Firms should prioritise the implementation of robust MI frameworks, leveraging data from various sources within the organisation, to enhance their financial crime prevention capabilities and ensure compliance with regulatory requirements. Through the power of MI, firms can strengthen their defences against financial crime and contribute to the integrity and stability of the financial system.

Beyond MI specialise in supporting clients with their targeted financial crime risk management reporting. This includes helping firms establish an MI framework that provides insight into the firm’s financial crime inherent risks and oversight into the effectiveness of the financial crime control environment; working with firms to implement risk appetite thresholds, tailored to their business and risk appetite; and enhancing the integrity of financial crime MI reporting through data quality frameworks and controls.

Contact us today to find out more about how we can help you with your financial crime MI Reporting requirements.

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