FCA Money Laundering Investigations and Prosecutions - Investigations into failures of MLROs

The Financial Conduct Authority (FCA) plays a crucial role in overseeing the UK’s financial services industry, ensuring that firms adhere to regulations designed to prevent financial crime, including money laundering. Money Laundering Reporting Officers (MLROs) are pivotal in this framework, responsible for detecting and reporting suspicious activity to safeguard against money laundering. However, when an MLRO fails in their duties - whether through negligence, non-compliance, or inadequate reporting - the FCA has the authority to investigate these failures. Such investigations can have significant consequences, not only for the individuals involved but also for the broader financial institution they represent. This article explores the FCA’s approach to investigating failures by MLROs, the potential legal and professional risks, and the steps MLROs should take if they find themselves subject to an FCA investigation.

FCA responsibilities

The FCA’s website describes their role as ensuring financial markets work well for individuals, for businesses, and for the growth and competitiveness of the UK economy.

In this article, we focus on how the FCA oversees the implementation of anti-money laundering (AML) regulations and works to prevent financial crimes like fraud, market manipulation, and terrorist financing.

The FCA monitors firms for compliance with AML rules and takes action against firms that fail to meet these obligations.  It issues Rules and Guidelines to govern how financial institutions conduct their business. The FCA handbook applies to firms authorised under the Financial Services and Markets Act 2000 (FSMA).

What is the MLRO?

MLRO stands for Money Laundering Reporting Officer. This is a key figure in financial institutions, regulated businesses, and other sectors vulnerable to financial crime. Tasked with overseeing and ensuring the effectiveness of an organisation’s anti-money laundering (AML) policies and procedures, the MLRO plays a critical role in detecting, preventing, and reporting potential money laundering activities. This position is essential for maintaining compliance with regulatory standards and safeguarding the integrity of the financial system.

The MLRO’s obligations under the FCA Handbook:

As the FCA handbook describes the job of the MLRO as “to act as the focal point for all activity within the firm relating to anti-money laundering.” (SYSC 3.2.6J). Furthermore, it specifies that a firm (with employees) must (i) “appoint an individual as MLRO, with responsibility for oversight of its compliance with the FCA's rules on systems and controls against money laundering” and (ii) “ensure that its MLRO has a level of authority and independence within the firm and access to resources and information sufficient to enable him to carry out that responsibility” (SYSC 6.3.9). By ensuring that the MLRO is properly empowered and equipped, the firm can more effectively mitigate financial crime risks and demonstrate a commitment to regulatory compliance

What are the responsibilities of the MLRO?

An individual appointed as the MLRO is entrusted with the responsibility of overseeing the firm's compliance with the FCA's regulations. The FCA has outlined specific expectations for MLROs through its Code of Conduct (COCON), which governs those carrying out the MLRO function. As senior managers, MLROs are subject to the following key conduct rules:

• SC1: Ensure that the business of the firm is effectively controlled and managed;
• SC2: Take reasonable steps to ensure that the firm complies with the relevant regulatory requirements and standards;
• SC3: Ensure that any delegation of responsibilities is assigned to a competent individual, and effectively oversee the discharge of those responsibilities; and
• SC4: Appropriately disclose any information that the FCA would reasonably expect to be notified about.

These conduct rules emphasise the importance of transparency in the MLRO role.

Money Laundering Through the Markets

Money Laundering Through the Markets (MLTM) is defined by the FCA as “the use of capital markets to move criminally generated funds, making them appear to be legally generated.” The FCA's Money Laundering Through Markets Review (January 2025) assesses the progress made in addressing the risks of money laundering within the UK capital markets. The review emphasises the need for continuous improvement and adaptation to tackle the growing threat of MLTM. It also emphasises the key role of MLROs in ensuring the effectiveness of AML measures. This report has raised the expectations of the MLRO role, emphasising the critical need for enhanced oversight, more robust controls, clear and effective reporting, and the provision of comprehensive training and resources to staff. As a result, the expectations of the role of MLROs are now more proactive than ever before.

How does the FCA investigate MLRO’s failures:

The FCA investigates the failures of MLROs through a meticulous process. When there are concerns that the MLRO has failed in their duties - such as failing to properly identify or report suspicious activity, not implementing adequate AML procedures, or neglecting to fulfil their obligations under the Proceeds of Crime Act (POCA) or the Money Laundering Regulations (MLR) - the FCA will typically take the following steps:

1. Investigation: The FCA will begin a detailed investigation to assess whether the MLRO has breached relevant legal and regulatory requirements. This often involves reviewing internal records, reports, communications, and compliance systems within the organisation. The FCA may also request interviews with the MLRO and other key staff.
2. Gathering Evidence: The FCA will gather evidence to determine whether the MLRO’s actions or omissions led to a failure in preventing money laundering or meeting regulatory standards. This could include reviewing reports of suspicious activity, compliance policies, training programs, and whether proper internal controls were in place and adhered to.
3. Enforcement Action: If the FCA concludes that the MLRO has failed to meet their regulatory responsibilities, it may take enforcement action. This can include sanctions such as fines or even banning the individual from performing a regulated function. In severe cases, criminal prosecution for breaches of money laundering regulations may be pursued.
4. Collaboration with Other Authorities: The FCA may also collaborate with other law enforcement agencies such as the National Crime Agency (NCA), Serious Fraud Office (SFO), or law enforcement if the failure is linked to broader criminal activity.

The FCA’s investigation into failures is thorough and seeks to ensure that financial institutions comply with AML regulations to prevent financial crimes.

What should you do if you are MLRO being investigated by the FCA?

Being investigated by the FCA is a serious matter, particularly for the MLRO, as it can impact your career and professional standing. Things to consider are:

1. Consulting a solicitor. They will guide you through the investigation process and how to respond to the FCA. Further, they will be able to help you better understand your legal rights.
2. Understanding the specific allegations made against. The FCA will provide details of the issues they are investigating whether they relate to your duties as MLRO, possible failures in the AML systems, or non-compliance with regulations.
3. Confidentiality. Ensure that all discussions about the investigation are kept confidential and are handled within the scope of legal advice.
4. Should you cooperate with the FCA’s investigation? Providing requested information and complying with requests for interviews is part of the process but always consult your lawyer on how to approach these matters.

How to Get in Contact

If you require assistance in relation to FCA investigations and are interested in finding out how we can help, please contact our team on info@ilaw.co.uk or call +44 (0)203 987 0222.

‍

‍

‍