Money laundering through the markets

Capital markets bring together buyers and sellers of stocks, bonds, currencies and other financial assets.

MLTM is the use of capital markets to move criminally generated cash, so it appears legitimately generated.

This threat is continually evolving.

To help firms better understand and mitigate the risk of MLTM, our report covers:

• examples of good and poor practice on enhancing systems, controls and training
• practical case studies
• detailed areas of focus for firms 

Download the report (PDF)[2]

Who this applies to

Our findings are likely to be of interest to:

• all firms carrying out business related to capital markets
• public bodies, firms and market participants responsible for assessing risk and setting strategy  
• money laundering reporting officers (MLROs)
• industry practitioners working in financial crime prevention
• law enforcement 

Our scope

We reviewed the financial crime systems and controls at a sample of wholesale brokers to understand how firms are approaching:  

• business-wide and customer risk assessments (BWRA and CRA)  
• know your customer (KYC) and customer due diligence (CDD) checks
• governance and oversight  
• transaction monitoring (TM)
• investigations and suspicious activity reports (SARs)  
• training

We focused our detailed firm reviews on wholesale broker firms. However, the findings in this report should be considered across wider markets and by other types of firms and business models.

What we expect from firms

We expect firms to have robust financial crime systems and controls at each stage of the customer and transaction journey. This is essential to make sure there are no ‘weak links’ that expose participants and the overall transaction to financial crime.

Firms should:

• consider MLTM risk and reflect this in their BWRA and systems and controls
• ensure they have firm and role specific MLTM staff training and awareness in place
• consider how best to use TM as part of an integrated process of financial crime systems and controls, incorporating tailored TM controls and alerts. Encourage more collaboration between TM, trade surveillance (TS), front and middle office teams
• ensure relevant teams are aware of the UKFIU MLTM SARs glossary code, are using it appropriately, and are submitting high-quality SAR reporting
• review the recently enacted Economic Crime and Corporate Transparency Act 2023[3] (ECCTA) and consider how they can share information to counter money laundering, raise awareness and intelligence, and reduce MLTM risk

What we found

We saw good practice and progress in several financial crime systems and controls across larger and smaller firms.  

However, relevant firms need more focus and improvement to mitigate risk more rigorously and tackle the issues raised in our previous thematic review (TR19/4[4]).

Key challenges include:

• transaction monitoring
• knowledge of the UK Financial Intelligence Unit (UKFIU) MLTM SAR glossary code[5]
• information sharing
• documenting CRA methods in enough detail

Actions for firms  

Firms need to continue to review their systems, controls, MLTM awareness and training.  

Next steps

Public bodies and firms need to work together to evolve and respond effectively to the threat of MLTM.

Using our supervisory work, we’ll make sure firms are considering MLTM risks, and the points raised in this report to drive improvements and reduce risk across the markets.

We’ll also encourage firms and third-party providers to innovate more, to tailor TM systems and alerts to capital markets.

We’ll work with:

• industry and partners – to understand and share information on MLTM risks, issues, typologies and best practice
• firms and other stakeholders – to find out if existing datasets can be better used to identify MLTM and allow more proactive supervision
• the UKFIU – to make sure firms are using the MLTM SARs glossary code more effectively

Background

We carried out a thematic review (TR19/4)[4] in 2019 to look at progress on combatting the risk of MLTM.

We did this as part of our commitment within the Economic Crime Plan 2 2023-26[6] (action 17) and in response to financial crime concerns raised through our supervisory work and reported in Dear CEO letters[7].