EG 19.14 1Money Laundering Regulations 2007

1The FCA has investigation and sanctioning powers in relation to both criminal and civil breaches of the Money Laundering Regulations. The Money Laundering Regulations impose requirements including, amongst other things, obligations to apply customer due diligence measures and conduct ongoing monitoring of business relationships on designated types of business.

1The FCA is responsible for monitoring and enforcing compliance with the Regulations not only by authorised firms who are within the Money Laundering Regulations’ scope, but also by what the Regulations describe as “Annex I financial institutions”. These are businesses which are not otherwise authorised by us but which carry out certain of the activities listed in Annex I of the Banking Consolidation Directive²⁸, now Annex I of the CRD. The activities include lending (e.g. forfaiters and trade financiers), financial leasing, and safe custody services. Annex I financial institutions are required to register with the FCA.

²⁸ Consumer credit financial institutions and money service businesses are also outside the definition of “Annex I financial institution”, which is set out in Regulation 22(1).

1The Money Laundering Regulations add to the range of options available to the FCA for dealing with anti-money laundering failures. These options are:

• • to prosecute both authorised firms and Annex I financial institutions;
• to take regulatory action against authorised firms for failures which breach the FCA's rules and requirements (for example, under Principle 3 or SYSC 3.2.6R or SYSC 6.1.1R); and
• • to impose civil penalties on both authorised firms and Annex I financial institutions under regulation 42 of the Money Laundering Regulations.

1This means that there will be situations in which the FCA has powers to investigate and take action under both the Act and the Money Laundering Regulations. The FCA will consider all the circumstances of the case when deciding what action to take and, if it is appropriate to notify the subject about the investigation, will in doing so inform them about the basis upon which the investigation is being conducted and what powers it is using. The FCA will adopt the approach outlined in EG 12 when prosecuting Money Laundering Regulations offences. In the majority of cases where both the Regulations and the FCA rules apply and regulatory action, as opposed to criminal proceedings, is appropriate, the FCA generally expects to continue to discipline authorised firms under the Act.

1The Money Laundering Regulations also provide investigation powers that the FCA can use when investigating whether breachesof the Regulations have taken place. These powers include:

• • the power to require information from, and attendance of, relevant and connected persons (regulation 37); and
• • powers of entry and inspection without or under warrant (regulations 38 and 39).

The use of these powers will be limited to those cases in which the FCA

expects to take action under the Regulations.

1The FCA will adopt a risk-based approach to its enforcement of the Money Laundering Regulations. Failures in anti-money laundering controls will not automatically result in disciplinary sanctions, although enforcement action is more likely where a firm has not taken adequate steps to identify its money laundering risks or put in place appropriate controls to mitigate those risks, and failed to take steps to ensure that controls are being effectively implemented.

1However, the Money Laundering Regulations say little about the way in which investigation and sanctioning powers should be used, so the FCA has decided to adopt enforcement and decision making procedures which are broadly akin to those under the Act. Key features of the FCA's approach are described

below.