Greg Kilminster
Head of Product - Content
FCA expresses concerns over compliance with money laundering regulations
The FCA has recently issued a Dear CEO letter expressing concerns about the compliance of financial institutions falling under Annex 1 of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs) with the money laundering regulations.
These institutions, which include lenders, safe custody providers, money brokers, and financial leasing companies, are not authorised persons under the Financial Services and Markets Act 2000 or money service businesses. However, they are still required to be registered and supervised by the FCA to ensure compliance with the MLRs.
Findings
In the letter, the FCA highlights several issues that commonly arise, including:
- Discrepancies between firms’ registered and actual activities and lack of Financial Crime controls to keep pace with business growth.
- Weaknesses in Business Wide Risk Assessments and Customer Risk Assessments.
- Lack of detail in policies creating ambiguity around actions staff should take to comply with their obligations under the MLRs.
- Lack of resources for Financial Crime, inadequate Financial Crime training and absence of a clear audit trail for Financial Crime related decision-making.
Next steps
In addition, the FCA outlines the recommended actions for firms to take in order to address these concerns. These steps include:
- All Annex 1 firms should assess their financial crime controls against the common weaknesses the FCA found within the next six months.
- Where they identify areas where they are falling short of FCA expectations, they need to act promptly to resolve them.
- Where firms do not take suitable steps in response to the FCA letter, they could face regulatory action, including possible enforcement action.
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FCA to investigate use of personal guarantees for small business loans
The Financial Conduct Authority (FCA) has announced an investigation into the use of personal guarantees by lenders to support loans for small businesses. This follows a super-complaint from the Federation of Small Businesses (FSB) under section 234C of the Financial Services and Markets Act 2000 (FSMA).
The FSB has raised concerns that lenders’ increasing demand for personal guarantees has a detrimental impact on small businesses, particularly small limited companies. It discourages them from borrowing funds to grow. Although this issue falls outside the FCA’s regulatory perimeter, the authority has decided to investigate further. The FCA has set out the following steps for its investigation:
- Collect data from April-June 2024 to understand the number of personal guarantees in place for sole traders and small partnerships borrowing less than £25,000.
- Review a sample of firms’ policies and procedures to understand when personal guarantees are required for loans that come under the FCA’s regulation.
- Work with the Financial Ombudsman Service (FOS) to monitor the levels of complaints related to this issue.
- Consider whether lenders need further guidance on applying the FCA’s rules and guidance within the Consumer Credit Sourcebook to situations where a personal guarantee is in place. If necessary, the FCA will consult and publish guidance in the usual manner.
If the FCA’s investigation identifies relevant information, it will share it with appropriate government departments, particularly the Treasury, as it considers reforming the Consumer Credit Act.
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CFPB implements new rule to close loophole in credit card late fee regulations
The Consumer Financial Protection Bureau (CFPB) has introduced a new rule to close a loophole that large credit card issuers have been exploiting to overcharge their customers for late payments.
Background
In 2010, the CARD Act was implemented, which restricted banks from charging fees that recover more than the costs associated with late payments. However, the regulation included an immunity provision, which allowed credit card companies to avoid accountability if they charged no more than $25 for the first late payment and $35 for subsequent late payments. Both amounts were adjusted for inflation each year.
Over time, these amounts have increased to $30 and $41, even as credit card companies have adopted cheaper digital business processes.
Key changes
After reviewing market data related to the immunity provision, the CFPB has decided to adopt a lower threshold of $8 for the immunity provision dollar amount for late fees. The automatic annual inflation adjustment for the $8 late fee threshold has also been eliminated. The CFPB will monitor market conditions and adjust the $8 late fee immunity threshold as necessary.
These new rules apply to large credit card issuers that have 1 million or more open accounts. They will be allowed to charge fees above the threshold, but only if they can prove that the higher fee is necessary to cover their actual collection costs.
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Cryptoasset trading platform charged for registration failure
The US Securities and Exchange Commission (SEC) has charged ShapeShift AG, a Swiss company, with acting as an unregistered dealer in connection with its online cryptoasset trading platform. From 2014 until early 2021, ShapeShift operated ShapeShift.io, an online platform that bought and sold crypto assets from and to users. The platform traded crypto assets that were offered and sold as securities. However, as per the SEC’s order, ShapeShift failed to register as a dealer.
To resolve the SEC’s charges, ShapeShift has agreed to pay a penalty of $275,000.
Click here to read the full RegInsight on CUBE’s RegPlatform