FCA warns asset management sector over weaknesses in financial crime controls

The Financial Conduct Authority has issued a clear warning to asset management and alternative investment firms following a review that uncovered significant weaknesses in financial crime control frameworks. The regulator’s findings highlight shortcomings across business wide risk assessments, customer due diligence, governance, outsourcing oversight and ongoing monitoring all areas central to firms’ obligations under the UK’s anti money laundering regime.

A notable concern was the number of firms that had either not completed, or had only partially completed, legally required business wide financial crime risk assessments. The FCA emphasised that firms must properly identify inherent risks arising from their activities and ensure these assessments meaningfully inform their control frameworks.

Customer risk assessment processes were also found lacking, particularly among firms operating in private markets. The FCA stressed the need for robust due diligence where clients have complex, layered or offshore structures, including clear identification of ultimate beneficial owners. With private markets continuing to grow and forming part of the FCA’s supervisory priorities, firms in this space should expect heightened scrutiny.

The review further revealed gaps in oversight of outsourced financial crime functions. Although many firms delegate elements of AML onboarding or monitoring, only a minority demonstrated full oversight of third party processes. The FCA reiterated that outsourcing does not dilute a firm’s regulatory responsibility and that effective supervision of external providers is essential.

Weaknesses in transaction monitoring were also identified, with more than a quarter of firms lacking formal processes. The FCA expects firms to maintain consistent, risk based monitoring with defined triggers for identifying suspicious activity.

Governance was another area of concern. Over half of MLROs surveyed were part time or held shared responsibilities, and senior management engagement with AML risk was often limited. The FCA expects larger and more complex firms to ensure their MLRO function is adequately resourced and that AML risk features regularly and substantively in governance forums.

The regulator’s message is clear: firms must assess their business models and financial crime frameworks against the FCA’s findings and address any gaps without delay. The FCA has signalled continued supervisory scrutiny, and firms that fail to meet expectations risk intervention through voluntary requirements, directions, or enforcement action. Financial crime control issues already represent a significant proportion of the FCA’s enforcement pipeline, and this trend is expected to continue.

For asset managers and alternative investment firms, particularly those with global investor bases or complex ownership structures, the FCA’s review underscores the need to ensure financial crime controls evolve in step with commercial growth. Senior management should now evaluate whether their firm’s controls are adequate, effective and proportionate to the risks inherent in their business model.

When to Seek Specialist Regulatory Advice

The FCA’s findings provide a timely reminder that firms should not wait for regulatory intervention before reviewing potential weaknesses in their financial crime controls. The regulator has made clear that firms are expected to assess their own arrangements against the issues identified and address deficiencies promptly.

Where concerns arise around governance, AML controls, customer due diligence, outsourcing arrangements, transaction monitoring or the interpretation of FCA requirements, businesses and their professional advisers should consider seeking specialist legal advice at an early stage.

Barristers at St Pauls Chambers can provide specialist advice and strategic guidance on FCA regulatory and compliance matters, working with businesses, compliance professionals and instructing solicitors as appropriate. Early advice can help identify regulatory risk, clarify the steps required to address potential deficiencies and assist firms in responding effectively where FCA scrutiny has already arisen.

To discuss an FCA regulatory matter in confidence, please contact the clerks at St Pauls Chambers.