UK Financial Services, regulations and ethics
12. Other Regulation
It is often hard for criminals to use funds gained from criminal activities openly, especially if they are carrying out monetary transactions where they can be questioned as to where the money came from. To enable them to use the proceeds of illegal activities without their original source being detected, they will resort to money laundering. The process will also attempt to make the funds appear perfectly 'clean' with an apparently legitimate reason for their existence.
A possible definition of money laundering is “the process by which criminals convert the proceeds of illegal activities into legitimate funds”.
Examples of crimes heavily associated with money laundering include drug trafficking and terrorism but the illegal proceeds could be from virtually any other activity.
There are several forms of money laundering and it is an international problem, which can affect all industries. Nobody can accurately identify the financial scale of the problem of money laundering in the UK economy as a whole, but estimates suggest it could run into £billions.
Key stages of money laundering process
Money laundering is usually a three-stage process:
Illegal funds are paid into legitimate financial arrangements with reputable institutions such as life assurance policies or building society accounts.
This involves a number of transactions to hide the original source of the criminal funds. The number of transactions is unlimited depending upon how far the criminal wants to go in hiding the source of funds. Often large sums of money from criminal activities are broken up into smaller denominations before the laundering process takes place.
This is the process by which the criminal funds finally look clean in that they appear to be fully integrated into the economy having gone through several transactions to hide their origins.
Financial services organisations are most frequently involved at the placement and layering stages. For example, a bank account is opened in a false name, the proceeds are then withdrawn and placed into a life assurance bond, the bond is surrendered early and the ‘clean’ proceeds transferred to an individual’s account overseas.
The UK and other members of the EU are members of the Financial Action Task Force (FATF), which is committed to legislation to combat money laundering.
Proceeds of Crime Act (POCA) 2002
The Proceeds of Crime Act 2002 (POCA) became law in January 2003. The legal position for money laundering activities is now primarily governed by this Act. The law is further underpinned however, by amendments made in the Serious Organised Crime and Police Act 2005 and the implementation of European directives via the Money Laundering Regulations 2007. We shall consider these later. POCA is still very important however, as the statute that records the major money laundering offences.
The main types of offence under the Proceeds of Crime Act 2002 are:
Laundering or assisting someone else in laundering the proceeds of crime
Failing to report knowledge or suspicion of money laundering
Tipping off, or giving somebody warning that their activity might come under scrutiny by the authorities.
Under the first category above, all of the following are considered offences:
Concealing, disguising, convert...
Shortened demo course. See details at foot of page....ious activities or breaching industry guidelines.
Part 3 of the Money Laundering Regulations 2007 lays down rules for internal record keeping. It requires customer records, including identification documents, verification correspondence and account opening mandates, to be kept for five years after the relationship with the customer has ended.
The date when the relationship with the customer has ended can be the date of:
The closing of the account
The carrying out of a one-off transaction or the completion of a number of transactions
The commencement of proceedings to recover debts payable on insolvency.
All other records of activity on an account should also be kept for the same five year period.
Records may be kept on microfiche or as computerised document images rather than in paper format. This can ease the burden of retaining records for five years. Each company tends to have its own procedures for record keeping. Regardless of the recommended retention period for records, all records of any customer, where a suspicious transaction has been reported, or where they are known to be under investigation, must be kept until the case is closed.
Any customer under suspicion in connection with money laundering will be investigated. The investigators will require the records to enable them to follow an audit trail.
The things the investigators might need to find out include:
The potential beneficiaries of the client account
The volume of funds/transactions flowing through the account
The original source of the funds
How funds were paid in or withdrawn, for example cash or cheque
The identity of the person making the transaction
The destination of the funds
How the instruction and authority were given, and in what form.
The Money Laundering Regulations 2007 stipulate that registered organisations should take appropriate measures to ensure that all relevant employees are:
(a) Made aware of the law relating to money laundering and terrorist financing;
(b) Regularly given training in how to recognise and deal with transactions and other activities which may be related to money laundering or terrorist financing.
No mention in the regulations is made of the frequency of training. In the past, it was stipulated that such training should take place at least every two years. It is now up to relevant organisations to decide when training should take place in accordance with their own risk strategy.
The Assets Recovery Agency
The Assets Recovery Agency was established to disrupt organised criminal enterprises through the recovery of criminal assets, and also aims to promote the use of financial investigation as an integral part of criminal investigation.
In October 2007 the Serious Crime Act 2007 received Royal Assent. It set out the Government’s decision to merge the operational elements of the Assets Recovery Agency (ARA) with the Serious Organised Crime Agency (SOCA), and the Agency’s training and accreditation functions with the National Policing Improvement Agency (NPIA). On 7 October 2013, the National Crime Agency (NCA) became fully operational.
It also extended to certain prosecutors the power to launch civil recovery action under the Proceeds of Crime Act 2002.
List the 3 stages of money laundering.
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The FCA requires every authorised firm to have a written complaints procedure and to publicise it. The FSMA established the Financial Ombudsman Service (FOS) for all complaints against authorised persons about regulated activities and matters previously dealt with by the Ombudsman schemes it replaced. The FOS is compulsory for all authorised firms, and there is a voluntary jurisdiction for firms that do not currently need authorisation, e.g. National Savings and Investments (NS&I).
A person who wants to complain to an authorised firm should make it firstly to the firm that provided the product or service; if it is not resolved to their satisfaction, they can then take the case to the Ombudsman. Complaints about the sale of contracts arranged by an intermediary should be made to the relevant intermediary rather than the product provider. Complaints about a sale made by an employee or representative of a provider should be made to the provider.
A complaint is any expression of dissatisfaction. The complaint may be made orally or in writing, it may be justified or not, and it can be about the provision or lack of it of a financial service.
Eligible complainants are considered to be:
Businesses that have fewer than 10 employees and has a turnover or annual balance sheet that does not exceed 2 million Euros
Charities with an annual income of less than £1 million
Trustees of Trusts with a net asset value of less than £1 million.
Professional clients or eligible counterparties are not eligible comp...
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If the claimant accepts the FOS decision, it is binding on the respondent up to £150,000 (£100,000 for complaints received prior to 1 January 2012) plus interest on the principal amount and any costs with interest also on that amount (although there is no equivalent limit on an order that the Ombudsman may make to the firm to ‘take steps’). If the claimant rejects the FOS decision, the respondent is no longer bound by it. The claimant is then free to pursue the matter through the courts. If the claimant does not respond, this is treated as a rejection.
The FOS can award compensation for any loss and/or order the respondent to take remedial action. The respondent must comply with the award.
The FOS can recommend to firms that they pay higher amounts, but these recommendations are not binding on the respondent. The Ombudsman also has the power to order firms to take steps such as transfer a pension, offer life cover etc.
The FOS cannot award the respondent costs against the complainant. Firms must not seek to charge their customers for the cost of bringing a complaint to themselves or the FOS.
The Pensions Ombudsman has an understanding with the FOS, whereby the FOS will deal with complaints regarding the sale of personal pensions and small occupational schemes, and the Pensions Ombudsman will handle problems associated with the management or administration of schemes.
Explain the types of complaints which are NOT subject to the stated time limits or record keeping requirements.
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In this section we discuss the main provisions of the Access to Medical reports Act 1988 and Access to Health records Act 1990.
Access to Medical Reports Act 1988
The purpose of this Act is to give applicants the right to view medical reports relating to them resulting from a life or health assurance application.
The Act applies to private medical attendants (general practitioner’s) reports, specialist and hospital reports, medical examinations and disability and death claim reports.
Before an insurance office can issue a re...
Shortened demo course. See details at foot of page.... health records.
As with the Access to Medical Reports Act, there are certain instances where the information requested may be withheld, particularly if in the health professional’s view, it could cause serious physical or mental harm to them.
Where an individual regards information held in their health records to be inaccurate, they can require the holder of the information to correct it, record the individual’s views if the health professional believes the information to be accurate and provide a copy of any correction or note.
The Data Protection Act 1998 applies to some manual data and paper records as well as electronic data, and imposes a series of obligations on those affected by the legislation. It can also cover telephone and CCTV recordings and photographs. All businesses handling such data must register with the Public Register of Data Controllers, stating the type and purpose of data they process and who has access to it.
Firms need to appoint a Data Protection Compliance Officer with sufficient authority to ensure that the Act is adhered to. The Government body overseeing the enforcement of the Act is the Information Commissioner .
Data Protection Act terminology
There are several terms defined in the Act that you need to be aware of:
Personal data - Information in respect of a living individual who can be identified from the information held by the data controller, e.g....
Shortened demo course. See details at foot of page....p>What are the risks from third party suppliers?
Are third party suppliers – for example, contract cleaners vetted?
Is confidential information left on desks?
There are a number of criminal offences under the Act including:
Failure to make a proper notification of processing to the Information Commissioner
Failure to comply with an information notice or an enforcement notice
Processing data without the data controller’s authorisation – an offence that could be committed by a firm’s data processors or other individual employees.
The penalties for non-compliance with the Act could result in unlimited fines or the instigation of court proceedings.
Within what timescale must a data controller comply with a request by an individual to have access to the records held on them?
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In this section we discuss the main objectives and activities of the Competition and Markets Authority.
As a part of the Governments reforms to the arrangements for competition, consumer protection and consumer credit regulation, on 31 March 2014 the Office of Fair Trading closed and its responsibilities transferred to other bodies. <...
Shortened demo course. See details at foot of page....rotection – working to promote compliance with and understanding of the law
Achieving professional excellence – managing each case efficiently and fairly and ensuring all analysis is carried out to the highest possible standard
Developing integrated performance – using staff effectively in multi-disciplinary teams.
In this section we discuss the main provisions of the Consumer Credit Acts.
The Consumer Credit Act 1974 (which is in the process of being replaced by the Consumer Credit Act 2006) regulates the provision of providing credit.
The Act applies to all individuals and firms that provide any sort of credit. As a result, it applies to both lenders and intermediaries. The 1974 Act related mainly to credit agreements not exceeding £25,000. <...
Shortened demo course. See details at foot of page.... an exemption for high net worth debtors. The definition of high net worth debtors is to be specified in future regulations.
From 6 April 2008 there will be a Consumer Credit Appeals Tribunal to hear appeals from decision of the OFT on licensing.
From 1 October 2008 debt administration services and credit information services became regulated.
The FCA took over the regulation of consumer credit from the Office of Fair trading on 1 April 2014.
In this section we discuss the main objectives and activities of the Pensions Regulator.
The Pensions Regulator regulates pension arrangements offered by employers in UK. It took up this function from the Occupational Pensions Regulatory Authority (OPRA) on 6 April 2005.
The objectives of the Pensions R...
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The Pensions Regulator can also require the production of documents by those involved in the running of the scheme and it can carry out inspections.
The Pensions Regulator is financed by levies on pension schemes.
Appeals against the Pensions Regulator can be made to the Pensions Regulator Tribunal .
In this section we discuss the main provisions of these regulations.
This Act replaces all the previous anti-discrimination laws and aims to protect people from discrimination in the work...
Shortened demo course. See details at foot of page.... difference between the scheme member and their spouse. Since October 2011, employees can also no longer be forced to retire at a certain age unless there is an objective justification for this.
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