Last week, the EFI team attended the latest quarterly meeting of the Institute of Money Laundering Prevention Officers (IMLPO). It was an enlightening session filled with discussions on current trends, regulatory updates, and practical insights into financial crime prevention. Here's a recap of the key insights we gained and their relevance to our work.
Spotlight on VREQs: What They Are and Their Growing Impact
One of the primary focuses of the meeting was the FCA’s increasing use of Voluntary Requirements (VREQs). As highlighted in the presentation by Sarah Hitchins and Nikki Johnstone, the use of VREQs has grown significantly, with a 486% increase in their issuance from 2019/20 to 2023/24. These regulatory tools are used to address risks such as financial crime or consumer harm. The discussion underscored several practical points for firms:
Governance is critical: Firms must establish robust processes to design, implement, and monitor controls for compliance with VREQs.
Early planning matters: Understanding and preparing for the requirements before agreeing to them can save significant challenges down the line.
Transparency is key: Many VREQs are published, so firms must consider potential reputational implications and have communication strategies in place.
Enforcement Spotlights: Lessons from Coinbase and Starling Bank
Two recent FCA enforcement actions were discussed in detail, providing invaluable lessons:
Coinbase: The FCA fined CB Payments Ltd (a Coinbase Group entity) £3.5 million for breaches related to its VREQ. The main issue? Inadequate controls and monitoring, leading to repeated and undiscovered breaches over two years.
Starling Bank: Starling Bank faced enforcement action after opening over 54,000 accounts for high-risk customers in breach of its VREQ terms. The case highlighted the importance of adapting internal controls and thoroughly monitoring compliance.
Both cases emphasise the need for meticulous attention to detail when implementing VREQs, along with ongoing oversight and prompt escalation of issues.
Practical Takeaways for Financial Crime Professionals
The panel discussion and key lessons shared during the meeting offered actionable advice for firms, including:
Understand the VREQ terms: Ensure clarity on what is required and assess your firm’s ability to meet those requirements before agreeing.
Ongoing monitoring: Regularly review compliance with VREQs and document all processes.
Swift action on breaches: Escalate issues as soon as they are identified and, if necessary, notify the FCA promptly.
How Firms Can Apply These Insights
Firms can leverage these insights by staying ahead of regulatory developments and adopting best practices to strengthen their financial crime operations. Here are some ways firms can effectively apply what was discussed at the IMLPO meeting:
Focus on Governance: Establish robust governance frameworks to design, test, and monitor controls that align with regulatory requirements such as VREQs.
Plan Before Agreeing: Evaluate the implications of regulatory requirements early, ensuring your firm has the resources and systems needed to comply.
Monitor and Report: Implement ongoing monitoring systems to ensure compliance and promptly escalate any issues or breaches to regulators.
Prepare for Publicity: Assess the reputational impact of published VREQs and proactively manage communication strategies.
By applying these practices, firms can mitigate risks, enhance compliance, and maintain trust with stakeholders.