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FCA is reviewing UK’s small trade finance lenders to assess their due diligence, risk assessment, and transaction monitoring procedures while imposing strong controls and restrictions on non-compliant firms.
The UK’s prominent financial watchdog, Financial Conduct Authority (FCA), reviews anti-money laundering controls of small trade finance lenders and international banking subsidiaries operational in the country. The financial watchdog focuses on their customer due diligence, transaction monitoring, and risk assessment procedures.
Over a year, when the FCA first warned the trade finance lenders of non-compliance and AML shortcomings in its “Dear CEO” letter, the country’s banks were being reviewed rigorously by the FCA to pinpoint the firms having serious financial crime compliance loopholes. However, to keep privacy intact, usually, the financial watchdog doesn’t publicly announce the review’s outcomes, yet the GTR review of financial services registers brought Havin Bank to the light, a Cuba-based trade finance lender, on which restrictions were imposed for not having proper in-house AML controls.
Under these restrictions, the bank cannot onboard new clients without getting FCA’s permission. It can only process trade finance transactions after verifying them by a compliance officer authorised by the watchdog while ensuring deficiencies are addressed effectively.
“The FCA is really ramping up its oversight and its scrutiny of firms across the regulated sector, but particularly I’d say the smaller foreign financial institutions that have a very small footprint here,” says Samar Pratt, president and global head of Exiger Advisory Solutions, one of the firms that act as a skilled person.
Despite the implementation of strong financial crime compliance, the FCA focuses on due diligence, particularly maintaining updated records regarding financial dealings and baking relationships. However, the outcomes for the trade finance lenders probed by the regulatory watchdog are mixed, including business restrictions, skilled person reviews, or simply making efforts to overcome non-compliance failures.
A spokesperson for the FCA says: “Reducing and preventing financial crime continues to be a key priority for the FCA and feeds into the organisation’s objectives to protect consumers and to enhance the integrity of the UK financial system. Our supervisory approach is intended to be risk-based, data-led, and agile, so resources are directed towards firms with the greatest risk. This includes trade finance firms.”