Why the FCA’s Increased Scrutiny of Terrorist Financing, Proliferation Financing and Sanctions Risks Matters
The FCA have asked for a number of statistics, data points and written response in relation to managing terrorist financing (TF), proliferation financing (PF) and sanctions risks. If your firm receives a request for information from the FCA, it is critical to treat it with the seriousness it deserves. In many ways, these requests function similarly to section 165 requests and how you respond could drive the level of scrutiny your firm faces moving forward. A strong and well-considered response can help mitigate the risk of escalation into a more intensive review. For more information about section 165 requests, please see our blog on this: Section 165 Requests: What they are and why they matter — Avyse Partners.
The FCA has also been increasingly focused on risk assessment effectiveness, particularly with how firms are incorporating TF, PF, and sanctions risks into their business-wide risk assessments. This is an ongoing focus, but the focus on these risks has significantly increased over the past few months.
Questions you should be asking yourself:
Assess your risk identification and management: How does your board-level oversight address the risks associated with TF, PF, and sanctions?
Review your business-wide risk assessment: Does it adequately assess TF, PF and sanctions risks? Does it identify actual risks, or just risks related to controls (e.g. screening)? You need a clear understanding of the real risks your business faces.
Evaluate the effectiveness of your controls: Are your controls tailored to the specific risks, or are they designed from broader policies and procedures? More importantly, have these controls been tested or audited?
Lessons learned: why accuracy matters in an FCA response
Our team has supported a variety of clients through the FCA’s data requests and subsequent section 165 requests, which can trigger a section 166 review. We have supported firms at all stages in this process and here is what we’ve learned:
Data misalignment with industry norms: The information submitted in these questionnaires is often used to benchmark your firm against peers. If your responses are out of line with industry standards, you may find yourself under increased scrutiny.
Increased supervisory attention: When firms submit inaccurate or incomplete data, they risk escalating the level of regulatory scrutiny. What might have started as a simple request can quickly evolve into a more intensive examination.
Reputational risks: The cost of preparation is minimal compared to the potential fallout from regulatory intervention, particularly when firms only realise the issues after the fact. Mistakes at this stage can damage your reputation and invite further scrutiny.
How we can help
At Avyse, we are already helping several institutions navigate these requests with confidence. Here’s how we can assist:
For firms that have already received a request: We can help you respond quickly and accurately, ensuring your responses align with regulatory expectations and industry standards.
For firms that have not received a request yet: We can provide you with the content of the questionnaires and work with you to proactively address any potential issues. We can also help uplift your risk assessments to ensure they are comprehensive and aligned with regulatory expectations.
For firms entering the fieldwork phase related to sanctions or other risk areas: We recommend initiating an independent assessment of your control environment to get ahead of any potential scrutiny.
If you would like a confidential conversation about a request you have received or you want to get ahead of the curve in anticipation of a request you think you may receive, reach out to us at contact@avyse.co.uk.