The United Kingdom’s Financial Conduct Authority (FCA) has opened a number of investigations into market firms over misconduct issues that could lead to prosecutions under Money Laundering Regulations, the regulator’s enforcement chief said.
The UK considers capital markets to be exposed to high risks of money laundering due to the risks around correspondent banking, risks of large sums being laundered and the relative lack of controls, according to its 2017 National Risk Assessment of Money Laundering and Terrorist Financing (NRA).
“The [NRA] included, for the first time, the emerging risk of money laundering in capital markets. We must act on this and we are,” said Mark Steward, Director of Enforcement and Market Oversight, said in a recent speech.
The FCA has “commenced a small number of investigations into firms’ systems and controls where, for the first time, we have indicated to those firms that we are looking at whether there has been any misconduct that might justify a criminal prosecution under the Money Laundering Regulations,” he said.
Capital markets cover raising and trading equity and debt, as well as trading derivatives, currency and commodities.
In January 2017, the FCA fined Deutsche Bank around £163 million over its Russian ‘mirror trades’ scandal, which involved transactions by customers of its London office and DB Moscow transferring an amount estimated to be over $10 billion from Russia, through the UK, into bank accounts in Cyprus, Estonia and Latvia.
“We have several investigations on foot dealing directly with series of capital market transactions that appear to have no apparent market purpose or function. If our suspicions are right, not only do these transactions falsify liquidity, trading volume and supply and demand in the market, the purpose of these transactions is unrelated to the sale and purchase of the underlying instruments, begging very hard questions,” Steward explained.
“The transactions in these cases also have cross-border elements and they are being conducted in association with regulators and law enforcement agencies both here and overseas.”