In January 2025, the Financial Conduct Authority (FCA) published a report concentrated in assessing and mitigating the risk of Money Laundering Through Markets (MLTM). This publication builds on their initial thematic review from 2019, focusing on the role of wholesale brokers in capital markets, issued to assist firms in their continued efforts to manage financial crime risk.
Understanding MLTM:
Money Laundering Through Markets (MLTM) involves using capital markets to launder funds obtained through criminal activities, making them appear legitimately generated from trading activities. As criminals become more sophisticated, the MLTM threat continues to rise, with new channels being sought to launder the proceeds of crime. Capital markets, with their complex products and the ability to move vast amounts of capital across different geographical regions with relative ease, are particularly vulnerable.
Key Findings:
The FCA's report highlights several areas of concern and focus which include:
- Business Wide Risk Assessment (BWRA): The FCA found some firms had insufficient risk assessments tailored to their business and failings in well documented BWRA and how the risks and mitigants feed into the broader control framework at the firm
- Testing of Controls and Systems: Some firms are not adequately tying together end-to-end processes such as KYC, transaction monitoring (TM) and governance to provide a holistic risk framework of the financial crime framework
- Client Risk Assessment (CRA): Examples of poor client risk assessment processes in firms where methodology considers only one or two factors, instead of a variety of factors and ensuring that the CRA methodology is well documented
- PEP Standards: Firms should consider the distinction between low and high-risk Politically Exposed Persons (PEPs) and the corresponding level of Enhanced Due Diligence (EDD) required
- Transaction Monitoring and Surveillance: Observations in the report point to firms not connecting the KYC information being used in conjunction with TM systems, it’s important that clients are onboarded with detailed information documented for their expected activity, allowing a holistic review of any alerts and an effective periodic review at its juncture. In many firms TM is working in isolation. Good practice identified includes proactive and regular review of the TM system, rationale in discounting alerts and managing the configuration to limit false positives against the residual risk
Practical Implications:
The FCA's findings underscore the need for firms to continue to enhance their financial crime systems and controls. This includes:
- Business-Wide Risk Assessment (BWRA): Firms should consider MLTM risk and reflect this in their BWRA and systems and controls, good practice would see a detailed risk model that is implemented across systems and controls with risk typologies appropriate for the business activity and products offered
- Training and Awareness: Implementing firm and role-specific staff training and awareness programs, additionally ensuring SMF role holders have sufficient ML/ financial crime knowledge
- Governance Improvement: Constantly striving to improve governance, having effective discussions on risks, documented decisions and clear agreed actions
- Integrated Financial Crime Systems: Using transaction monitoring as part of an integrated process of financial crime systems and controls, incorporating tailored TM controls and alerts alongside the onboarding framework
Final thoughts:
The FCA's latest report on MLTM provides a valuable reminder of the focus by the FCA on financial crime efforts and gives reinforced recommendations for firms operating in capital markets. By addressing the highlighted areas of concern and implementing robust systems and controls, firms can better mitigate the risks associated with MLTM and manage their likelihood of potential enforcement action.
How can Delta Capita help?
Discover how our Client Lifecycle Management capabilities can support you in your CLM journey. To find out more, contact us and speak to one of our CLM experts.
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