UK Financial Services, regulations and ethics

In this section, we establish the main regulations relating to the fight against money laundering.

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.

One 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; however, 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, 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 making several 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 For example, a bank account is opened in a false name, the proceeds are then withdrawn and placed into a life assurance bond, the bond is surrendered early and the “clean” proceeds transferred to an individual’s account overseas.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) is the principal UK statute in the fight against money laundering and has been amended numerous times, most recently by the Criminal Finances Act 2017. Under this legislation, criminal offences include:

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 property

The term “criminal property” is also worth clarifying. The Proceeds of Crime Act does not just consider criminal property as cash. It is concerned with the goods or services that are obtained through organised crime as well as any currency itself. Therefore, criminal property is any benefit in money, goods or services which somebody enjoys from an illegal sourc...

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...ious transaction has been reported, or where they are known to be under investigation, must be kept until the case is closed.

Investigation

Any customer under suspicion of 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, by 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

A person who reports their suspicions is covered by their firm’s whistleblowing procedures. The NCA must know who they are in order to obtain further information from them as part of their investigations, but their names are concealed, and they will not be called upon to give evidence.

Training

The Money Laundering Regulations 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;

and

(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 is made in the regulations 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.

Financial sanctions

According to the UK Financial Sanctions General Guidance (updated 2024), financial sanctions are measures imposed by either the United Nations or the UK government to help achieve particular foreign policy goals or protect national security. Such sanctions may restrict the provision of certain financial services, and/or limit access to financial markets, funds, and other economic assets.

HM Treasury publishes and updates the list of individuals and entities subject to these sanctions.

It is a criminal offence to make or facilitate payments to anyone listed under these sanctions, whether dealing with them directly or indirectly through third parties like legal or accountancy professionals. All regulated businesses—not only banks—are required to have effective systems in place to check payment instructions and ensure that funds are not sent to sanctioned individuals or organisations, or to those acting on their behalf.

The Assets Recovery Agency

The Assets Recovery Agency was established was established by the Proceeds of Crime Act. It is part of the NCA and is responsible for confiscating the financial proceeds of criminal acts, working closely with UK police forces.

Other forms of financial crime

In addition to money laundering there are other forms of financial crime including: fraud, cybercrime, terrorist financing, bribery and corruption, market abuse and insider dealing, and information security.

The Bribery Act 2010 aims to reduce the effects of bribery with penalties applying to both individuals and firms. Regulated firms have to have procedures to prevent bribery and fully implement them.

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).

Procedures

A person who wants to complain to an authorised firm should firstly make their complaint 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 defined as any oral or written expression of dissatisfaction, whether justified or not, from or on behalf of a person about the provision of, or failure to provide, a financial service, which alleges that the complainant has suffered (or may suffer) financial loss, material distress or material inconvenience, and which relates to an activity under the jurisdiction of the Financial Ombudsman Service. It does not have to be in writing, and an adviser can complain on behalf of a client.

Eligible complainants are:

Private individuals

Businesses that have fewer than 10 employees and a turnover or annual balance sheet that does not exceed two million Euros (‘micro ente...

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...e law, the FCA rules and guidance and statements of good industry practice but not strictly bound by law or precedent.

Notify its decision to the complainant and the respondent in writing and give reasons for the decision. The claimant must then accept or reject the FOS’s decision within the time limit that the FOS specifies

Redress can be awarded in two ways:

A money award of:

- £445,000  for complaints referred on or after 1 April 2024 for acts or omissions after 1 April 2019

- £200,000 for complaints referred on or after 1 April 2024 about actions or omissions that occurred before 1 April 2019

A directions award telling a firm what action(s) it must take to put things right for the customer. This can include paying a claim, calculating redress using FCA formulas, or issuing an apology

If the claimant accepts the FOS decision, it is binding on the respondent. 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 FSCS was created to compensate claimants where a loss was incurred through an organisation being unable to meet its commitments to its clients e.g. a deposit holding organisation going out of business.

The claim must be for a protected deposit with a UK bank or buil...

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...ry high balances in deposit accounts due to house sales or divorce settlements are protected up to £1 million for six months from the date in which the money is placed into the account or the date in which the depositor becomes entitled to it, whichever is the later.

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.

The Act applies to medical reports provided by medical practitioners for employment or insurance purposes.

Before an insurance office can issue a report on an individual, they must first inform the individual that they wish to obtain the repor...

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...ccess 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 2018 (DPA 2018) came into effect in May 2018 to coincide with the implementation of the EU General Data Protection Regulations (GDPR). Both govern the processing of personal data in the UK. The DPA 2018 mirrors much of the UK GDPR, but makes some modifications, such as exceptions for law enforcement and allowing individuals age 13 or over to give online consent without parental permission. The legislation applies to all persons or organisations who process personal data other than for domestic purposes.

It 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. the person’s name and address. This can also include indirect identifiers such as online identifiers or uni...

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...protection of personal data. Strict restrictions are in place in respect of the transfer of personal data outside the EU to ensure that the new levels of protection are not undermined.

Data security

Firms should consider the following points when reviewing their security:

What is client data?

This is any personal data held in any format.

What are the main risks?

This is not purely an IT issue; for example:

Are visitors to the premises supervised?

Are administration staff vetted at recruitment?

What are the risks from third party suppliers?

Are third party suppliers – for example, contract cleaners - vetted?

Is confidential information left on desks?

Breach notification

Under the legislation, organisations must report personal data breaches to the Information Commissioner’s Office where there is likely to be a risk to individuals. If the risk is high, individuals must also be informed.

Penalties

There are several 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.

In this section we discuss the main objectives and activities of the Competition and Markets Authority.

As a part of the Government’s reforms to the arrangements for competition, consumer protection and consumer credit regulation, the Office of Fair Trading closed on 31 March 2014 and its responsibilities transferred to other bo...

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...ection – 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

The Consumer Credit Act 1974 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. Debt restructuring services are included under the Act.

The Consumer Credit Act 2006 covers credit cards, hire purchase agreements, payday loans, personal loans, store cards and secured loans (except on main residences, as these are regulated mortgages). Certain debts are not covered by the Act, such as mortgages, certain business debts and “buy now pay later” finance. Further exemptions were given under the Consumer Credit (Exempt Agreements) Order 1989, alt...

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...ies open to them if things go wrong. Currently, 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 consumer’s 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 work-based pension schemes in the UK and seeks to be a strong, visible regulator that helps to build confidence in pension savings. It ensures that schemes are adequately funded, run in the interests of retirement savers, and that employers meet their obligations to automatically enrol employees and make contributions.

The objectives of the Pensions Regulator are:

To protect people’s savings in workplace pensions

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

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 saf...

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...ns 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 (a statutory corporation established under the Pensions Act 2004 and part of the Department for Work and Pensions). To help fund the PPF, compulsory annual levies are charged on all eligible schemes. Currently, the PPF manages pensions for over 295,000 individuals and £33 billion in assets, appointing a range of fund managers and maintaining oversight of the funds under management. 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...

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...ce 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.