FSA regulation of MSB Activity

Firms authorised by the FSA for their regulated activities,
such as accepting deposits, may also offer MSB services.
Retail and wholesale banks for example, often provide money
remittance services, and at least 40 firms are known to offer
bureau de change facilities.

The FSA’s expectation of all firms is that they should
manage their risks effectively and comply with relevant legal
requirements. In all aspects of its regulation the FSA
stresses the importance of a risk-based approach, that firms
should focus more efforts on the higher risks and less on the
smaller ones. This risk-based approach is crucial in the
money laundering (ML) and terrorist financing (TF) context.
The FSA looks to a firm to have systems and controls that
(a) enable it to identify, assess, monitor and manage ML/TF
risk; and (b) are comprehensive and proportionate to the
nature, scale and complexity of that firm’s activities. It follows
from this that firms should have in place risk-sensitive and
effective ID check arrangements; and that they should
deploy ID alongside other ML/TF tools in order effectively to
manage their risks. Firms are under no obligation to use the
types of approach recommended in the JMLSG Guidance
Notes, but if they choose to do so the FSA would take this
guidance into account in the event of considering any
potential regulatory breach.
The FSA has acknowledged that there can be a ‘fear factor’
with respect to their supervisory approach and enforcement
actions, some firms take a very conservative approach to ID
in order to reduce the likelihood of regulatory sanctions. The
FSA is concerned that any such fear detracts from the
effectiveness of the ML/TF regime and may impact adversely
on consumers. With this in mind Philip Robinson, the FSA's
Financial Crime Sector Leader, wrote to Ian Mullen,
Chairman of the JMLSG in October 2004 to put on the
record the FSA's approach to supervision and enforcement
over ML/TF risks. The letter underlined that only when there
is significant failure in systems and controls does the FSA
consider taking public enforcement action. The letter also
signalled that the FSA would in future focus more on other
aspects of the fight against ML/TF, and is more likely to take
action over ID only if there are particularly aggravating
circumstances such as actual money laundering having
been facilitated by poor practices in the firm.