Learning Material Sample

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:

1. Placement

Illegal funds are paid into legitimate financial arrangements with reputable institutions such as life assurance policies or building society accounts.

2. Layering

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.

3. Integration

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 For example, a bank account is opened in a false name, the proceeds are then withdrawn and placed into a life assurance bond, the bond is surrendered early and the ‘clean’ proceeds transferred to an individual’s account overseas.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, converting or transferring criminal property

Assisting somebody else to acquire, retain, use or control criminal property

Personally acquiring, using or having possession of criminal...

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... 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.

Future Anti-Money Laundering Developments

In February 2013 the European Commission published a proposal for a new anti-money laundering Directive - the Fourth Anti-Money Laundering Directive. Once adopted, this Directive will be transposed into UK legislation through new Money Laundering Regulations. These will replace the current Regulations, which date from 2007. European ‘general agreement’ on the Directive was reached in June 2014 and it is likely to be implemented later in 2015.

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:

Private individuals

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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...mit that the FOS specifies.

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...

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... 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....

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...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. <...

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...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.

Certain bodies could apply for exemption against the Act if they deal in loans secured on land. Building Societies are specifically exempt.

Everyone dealing in consumer credit business must obtain a l...

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...urrently, the core terms of insurance contracts, such as exclusions, cannot be challenged on the grounds of fairness, however, if a term of a contract is not transparent or prominent (expressed in plain language and brought to the consumers attention in such a way that they are aware of it) it can be assessed for unfairness. To avoid unfairness challenges, insurers will need to ensure that the significant terms in insurance contracts meet the rules on transparency and are communicated prominently.  Contracts deemed unfair will not be binding.  These rules cover not only the contract itself but also renewal invitations and customer promotions.
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 Regulator are:

To protect the benefits of members of work-based pension schemes

To protect the members of personal pension schemes where there is a direct payment arrangement

To promote and improve the understanding of the good administration of work-based pension schemes and

To reduce the risk of situations arising that may lead to claims for compensation from the Pension Protection Fund

To maximise employer compliance with employer duties and the employment safeguards introduced by the Pensions Act 2008

To minimise any adverse impact on the sust...

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...he Pensions Ombudsman, an independent organisation set up by law, can assist in the investigation of complaints regarding pension administration.  The service is free and can make decisions which are final, binding and enforceable in court.

Pensions Protection Fund (PPF)

The main function of the Pensions Protection Fund is to provide compensation to members of defined benefit pension schemes when there is an insolvency event related to the employer and insufficient assets in the pension scheme to cover the PPF level of compensation.  The PPF is a statutory fund run by the fund’s board.  To help fund the PPF, compulsory annual levies are charged on all eligible schemes.   The PPF is also responsible for the Fraud Compensation Fund which provides compensation to occupational pension schemes that suffer a loss attributable to dishonesty.

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...

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... 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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