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Annex 1 Common terms

Annex 1

1This annex provides a list of common and useful terms related to financial crime. It also includes references to some key legal provisions. It is for reference purposes and is not a list of ‘defined terms’ used in FCG. This annex does not provide guidance on rules or amend corresponding references in the Handbook’s Glossary.

Term

Meaning

Action Fraud

The UK’s national fraud reporting centre. See: www.actionfraud.police.uk

advance fee fraud

A fraud where people are persuaded to hand over money, typically characterised as a ‘fee’, in the expectation that they will then be able to gain access to a much larger sum which does not actually exist.

AML

Anti-money laundering. See ‘money laundering’.

Annex I financial institution

The Money Laundering Regulations give the FCA responsibility for supervising the anti-money laundering controls of ‘Annex I financial institutions’ (a reference to Annex I to the Capital Requirements Directive, where they are listed). In practice, this includes businesses that offer finance leases, commercial lenders and providers of safe deposit boxes.

Where an authorised firm offers such services, we are responsible for overseeing whether these activities are performed in a manner that complies with the requirements of the Money Laundering Regulations. Authorised firms are not formally required to inform us that they perform these activities, although some may choose to do so for the sake of transparency.

Where these businesses are not authorised, we are responsible for supervising their activities. For more information on this, see the FCA’s website: https://www.fca.org.uk/firms/money-laundering-terrorist-financing/registration

beneficial owner

The natural person who ultimately owns or controls the customer. An entity may have more than one beneficial owner. ‘Beneficial owner’ is defined in Regulations 5 and 6 of the Money Laundering Regulations.

boiler room

See ‘share sale fraud’.

bribery

Bribery is the offering or acceptance of an undue advantage in exchange for the improper performance of a function or activity. Statutory offences of bribery are set out more fully in the Bribery Act 2010.

Bribery Act 2010

The Bribery Act came into force in July 2011. It outlaws offering and receiving bribes, at home and abroad, as well as creating a corporate offence of failure to prevent bribery. The Ministry of Justice has issued guidance about procedures which firms can put in place to prevent bribery: https://www.justice.gov.uk/downloads/legislation/bribery-act-2010-guidance.pdf

business-wide risk assessment

A business-wide risk assessment means the identification and assessment of the financial crime risks to which a firm is exposed as a result of, for example, the products and services it offers, the jurisdictions it operates in, the types of customer it attracts, the complexity and volume of transactions, and the distribution channels it uses to service its customers.

carbon credit scams

Firms may sell carbon credit certificates or seek investment directly in a ‘green’ project that generates carbon credits as a return. Carbon credits can be sold and traded legitimately and there are many reputable firms operating in the sector. We are, however, concerned an increasing number of firms are using dubious, high-pressure sales tactics and targeting vulnerable consumers. See: https://www.fca.org.uk/scamsmart/carbon-credit-scams

CDD

See ‘customer due diligence’.

CIFAS

CIFAS is the UK’s fraud prevention service with over 250 members across the financial industry and other sectors. See CIFAS’s website for more information: www.cifas.org.uk

Defence against Money Laundering

A ‘Defence Against Money Laundering (DAML)’ can be requested from the NCA where a firm has a suspicion that property they intend to deal with is in some way criminal, and that by dealing with it they risk committing one of the principal money laundering offences under the Proceeds of Crime Act 2002 (POCA).

A person does not commit one of those offences if they have received ‘appropriate consent’ (aka a “DAML”) from the NCA. The NCA is empowered to provide these criminal defences in law under s335 of POCA.

More information is available from the NCA,

http://www.nationalcrimeagency.gov.uk/publications/902-defence-against-money-laundering-faq-may-2018/file

Consolidated List

OFSI maintains a Consolidated List of financial sanctions targets designated by the United Nations, the European Union and the United Kingdom. It is available from the Treasury’s website: www.hm-treasury.gov.uk/fin_sanctions_index.htm

corruption

Corruption is the abuse of public or private office to obtain an undue advantage. Corruption includes not only bribery but also other forms of misconduct or improper behaviour. This behaviour may or may not be induced by the prospect of obtaining an undue advantage from another person.

Counter-Terrorism Act 2008

The Treasury has powers under Schedule 7 to the Counter-Terrorism Act 2008 to require financial firms to take specified actions in relation to a country of concern, or counterparties based in that country. Use of this power can be triggered if a) the risk of money laundering or terrorist financing activities is identified in a country, or b) the government believes a country has a nuclear, chemical, radiological or biological weapons programme that threatens the UK. The directions can require enhanced due diligence and ongoing monitoring, the systematic reporting of transactions, or the cessation of business. This offers the government flexibility that was not available in the traditional financial sanctions regime. We are responsible for monitoring authorised firms’ and certain financial institutions’ compliance with these directions.

cover payment

Where payments between customers of two banks in different countries and currencies require settlement by means of matching inter-bank payments, those matching payments are known as ‘cover payments’. International policymakers have expressed concern that cover payments can be abused to hide the origins of flows of funds. In response to this, changes to the SWIFT payment messaging system now allow originator and beneficiary information to accompany cover payments.

CPS

See ‘Crown Prosecution Service’

Crown Prosecution Service (CPS)

The Crown Prosecution Service prosecutes crime, money laundering and terrorism offences in England and Wales. The Procurator Fiscal and Public Prosecution Service of Northern Ireland play similar roles in Scotland and Northern Ireland respectively. See the CPS website for more information: www.cps.gov.uk

CTF

Combating terrorist financing/countering the finance of terrorism.

customer due diligence (CDD) ‘

Customer due diligence’ describes measures firms have to take to identify, and verify the identity of, customers and their beneficial owners. Customer due diligence also includes measures to obtain information on the purpose and intended nature of the business relationship. See Regulation 7 of the Money Laundering Regulations. ‘Customer due diligence’ and ‘Know Your Customer’ (KYC) are sometimes used interchangeably.

dual use goods

Items that can have legitimate commercial uses, while also having applications in programmes to develop weapons of mass destruction. Examples may be alloys constructed to tolerances and thresholds sufficiently high for them to be suitable for use in nuclear reactors. Many such goods are listed in EU regulations which also restrict their unlicensed export.

Data Protection Act 1998 (DPA)

The DPA imposes legal obligations on those who handle individuals’ personal information. Authorised firms are required to take appropriate security measures against the loss, destruction or damage of personal data. Firms also retain responsibility when data is passed to a third party for processing.

economic sanctions

Restrictions on trade or financial flows imposed by the government in order to achieve foreign policy goals. See: ‘financial sanctions regime’, ‘trade sanctions’, and ‘proliferation finance’.

EEA firms

Firms from the European Economic Area (EEA) which passport into the UK are authorised persons. This means, generally speaking, EEA firms who carry on relevant business from a UK branch will be subject to the requirements of the Handbook and of the Money Laundering Regulations. However, an EEA firm that only provides services on a cross-border basis (and so does not have a UK branch) will not be subject to the Money Laundering Regulations, unless it carries on its business through representatives who are temporarily located in the UK.

Egmont Group

A forum for financial intelligence units from across the world. See the Egmont Group’s website for more information: www.egmontgroup.org

embargos

See ‘trade sanctions’.

e-money

The Electronic Money Regulations 2011 (SI 2011/99) define electronic money as electronically (including magnetically) stored monetary value, represented by a claim on the issuer, which is issued on receipt of funds for the purpose of making payment transactions, and which is accepted by a person other than the electronic money issuer. The E-money Regulations specify who can issue e-money; this includes credit institutions and e-money institutions.

e-money institutions (EMIs)

E-money institutions are a specific category of financial institutions authorised or registered to issue e-money under the Electronic Money Regulations 2011, rather than FSMA. The FCA’s financial crime Handbook provisions do not apply to e-money institutions, but the FCA supervises e-money institutions for compliance with their obligations under the Money Laundering Regulations. They must also satisfy us that they have robust governance, effective risk procedures and adequate internal control mechanisms. This incorporates their financial crime systems and controls. For more information, see our payment services and e-money approach document: https://www.fca.org.uk/publication/finalised-guidance/fca-approach-payment-services-electronic-money-2017.pdf

enhanced due diligence (EDD)

Regulations 33-35 of the Money Laundering Regulations require firms to apply additional, ‘enhanced’ customer due diligence measures in higher risk situations (see FCG 3.2.7G to FCG 3.2.9G).

equivalent jurisdiction

A jurisdiction (other than an EEA state) whose law contains equivalent provisions to those contained in the Fourth Money Laundering Directive. The JMLSG has prepared guidance for firms on how to identify which jurisdictions are equivalent. Equivalent jurisdictions are significant because it is a factor that a firm may consider when deciding whether to apply ‘simplified due diligence’ to financial institutions from these places. Firms can also rely on the customer due diligence checks undertaken by certain introducers from these jurisdictions (see ‘reliance’).

export controls

UK exporters must obtain a licence from the government before exporting certain types of goods, primarily those with military applications. Exporting these goods without a licence is prohibited by the Export Control Order 2008 (SI 2008/3231). If an authorised financial firm were to finance or insure these illegal exports, it would arguably have been used to further financial crime.

family member of a PEP

Regulation 35(12)(b) of the Money Laundering Regulations defines a family member of a PEP as including a spouse or civil partner of a PEP; children of the PEP and the spouses or civil partners of the PEP’s children; and the parents of a PEP. The FCA’s Finalised Guidance ‘FG17/16: The treatment of politically exposed persons for anti-money laundering purposes’ provides further guidance on this definition.

FATF

See ‘Financial Action Task Force’.

FATF Recommendations

Forty Recommendations issued by the FATF on the structural, supervisory and operational procedures that countries should have in place to combat money laundering. These were revised in February 2012, and now incorporate the nine Special Recommendations on the prevention of terrorist financing that were previously listed separately. The Forty Recommendations can be downloaded from the FATF’s website: http://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html

FATF-style regional bodies

Regional international bodies such as Moneyval and the Asia-Pacific Group which have a similar form and functions to those of the FATF. The FATF seeks to work closely with such bodies.

FI

See ‘Financial Investigator’.

Financial Action Task Force (FATF)

An intergovernmental body that develops and promotes anti-money laundering and counter terrorist financing standards worldwide. Further information is available on its website: www.fatf-gafi.org

Financial Conduct Authority (FCA)

The Financial Conduct Authority has statutory objectives under FSMA that include protecting and enhancing the integrity of the UK financial system. The integrity of the UK financial system includes its not being used for a purpose connected with financial crime. We have supervisory responsibilities under the Money Laundering Regulations for authorised firms and businesses such as leasing companies and providers of safe deposit boxes. We also have functions under other legislation such as Schedule 7 to the Counter-Terrorism Act 2008.

financial crime

Financial crime is any crime involving money. More formally, the Financial Services and Markets Act 2000 defines financial crime ‘to include any offence involving (a) fraud or dishonesty; (b) misconduct in, or misuse of information relating to, a financial market; or (c) handling the proceeds of crime’. The use of the term ‘to include’ means financial crime can be interpreted widely to include, for example, corruption or funding terrorism.

financial intelligence unit (FIU)

The IMF uses the following definition: ‘a central national agency responsible for receiving, analyzing, and transmitting disclosures on suspicious transactions to the competent authorities.’ The NCA has this role in the UK.

Financial Investigator (FI)

Financial Investigators are accredited people able under the relevant legislation to investigate financial offences and recover the proceeds of crime.

financial sanctions regime

This prohibits firms from providing funds and other economic resources (and, in the case of designated terrorists, financial services) to individuals and entities on a Consolidated List maintained OFSI. OFSI is responsible for ensuring compliance with the UK’s financial sanctions regime; our role is to ensure firms have appropriate systems and controls to enable compliance.

Financial Services and Markets Act 2000 (FSMA)

The Financial Services and Markets Act 2000 sets out the objectives, duties and powers of the Financial Conduct Authority and the Prudential Regulation Authority.

Financial Services Authority (FSA)

The Financial Services Authority was the previous financial services regulator. It had statutory objectives under FSMA that included the reduction of financial crime. The FSA had supervisory responsibilities under the Money Laundering Regulations for authorised firms and businesses such as leasing companies and providers of safe deposit boxes. It also had functions under other legislation such as the Transfer of Funds (Information on the Payer) Regulations 2007, in relation to the EU Wire Transfer Regulation, and schedule 7 to the Counter-Terrorism Act 2008.

FIU

See ‘financial intelligence unit’.

four-eyes procedures

Procedures that require the oversight of two people, to lessen the risk of fraudulent behaviour, financial mismanagement or incompetence going unchecked.

Fourth Money Laundering Directive (4MLD)

The Fourth Money Laundering Directive (2015/849/EC). The UK has implemented this Directive mainly through the Money Laundering Regulations.

fraud (types of)

Fraud can affect firms and their customers in many ways. The following are examples of fraud:

a firm is defrauded by customers (e.g. mortgage fraud);

a firm is defrauded by employees or contractors (‘insiders’) (e.g. a staff member steals from his employer and amends records to cover-up the theft);

a firm’s customers are defrauded by an insider (e.g. a staff member steals customers’ money);

a firm’s customers are defrauded after a third party misleads the firm (e.g. criminals evade security measures to gain access to a customer’s account);

a firm’s customers are defrauded by a third party because of the firm’s actions (e.g. the firm loses sensitive personal data allowing the customer’s identity to be stolen);

a customer is defrauded, with a firm executing payments connected to this fraud on the customer’s instruction (e.g. a customer asks his bank to transfer funds to what turns out to be a share sale scam).

See also: ‘advance fee fraud’, ‘boiler room’, ‘carbon credit scams’, ‘investment fraud’, ‘land banking scams’, ‘long firm fraud’, ‘mass-marketing fraud’, ‘Missing Trader Inter-Community fraud’, ‘Ponzi and pyramid schemes’, ‘share sale fraud’.

Fraud Act 2006

The Fraud Act 2006 sets out a series of fraud offences such as fraud by false representation, fraud by failing to disclose information and fraud by abuse of position.

FSA

See ‘Financial Services Authority’.

FSMA

See ‘Financial Services and Markets Act 2000’.

FSRB

See ‘FATF-style regional bodies’.

fuzzy matching

The JMLSG suggests the term ‘fuzzy matching’ ‘describes any process that identifies non-exact matches. Fuzzy matching software solutions identify possible matches where data – whether in official lists or in firms’ internal records – is misspelled, incomplete, or missing. They are often tolerant of multinational and linguistic differences in spelling, formats for dates of birth, and similar data. A sophisticated system will have a variety of settings, enabling greater or less fuzziness in the matching process’. See Part III of the JMLSG’s guidance: http://www.jmlsg.org.uk/download/10007

Funds Transfer Regulation

This EU Regulation is formally titled ‘Regulation (EU) 2015/847 of the European Parliament and of the Council of 20 May 2015 on information accompanying transfers of funds’. It implements FATF’s Recommendation 16 in the EU and requires firms to accompany the transfer of funds with specified information identifying the payer and the payee. We are given supervisory and enforcement powers for compliance with this regulation by the Money Laundering Regulations.

high-value dealer

A firm trading in goods (e.g. cars, jewellery and antiques) that accepts cash of €10,000 or more in payment (whether in one go or in several payments that appear to be linked). HMRC is the supervisory authority for high value dealers. A full definition is set out in Regulation 14(1)(a) of the Money Laundering Regulations.

HM Revenue and Customs (HMRC)

HM Revenue and Customs has supervisory responsibilities under the Money Laundering Regulations. It oversees money service businesses, dealers in high value goods, estate agents and trust or company service providers, amongst others. See HMRC’s website for more information: https://www.gov.uk/topic/business-tax/money-laundering-regulations

HMRC

See ‘HM Revenue and Customs’.

HMT

See ‘Treasury’.

ICO

See ‘Information Commissioner’s Office’.

ID

Identification (or Identity Documents).

identification

The JMLSG’s definition is: ‘ascertaining the name of, and other relevant information about, a customer or beneficial owner’.

IFB

Insurance Fraud Bureau.

Information Commissioner’s Office (ICO)

The Information Commissioner’s Office is tasked with protecting the public’s personal information. See the ICO’s website for further information: www.ico.org.uk

Information From Lenders (IFL)

The Information From Lenders scheme enables mortgage lenders to inform the FCA of suspected fraud by mortgage brokers. Details are here: https://www.fca.org.uk/firms/fraud/report-mortgage-fraud-advisers

insider fraud

Fraud against a firm committed by an employee or group of employees. This can range from junior staff to senior management, directors, etc. Insiders seeking to defraud their employer may work alone, or with others outside the firm, including organised criminals.

Institute of Chartered Accountants in England and Wales (ICAEW)

The Institute of Chartered Accountants in England and Wales has supervisory responsibility for its members under the Money Laundering Regulations, as do other professional bodies for accountants and book-keepers. See the ICAEW’s website for further information:www.icaew.com

integration

See ‘placement, layering, integration’.

investment fraud

UK-based investors lose money every year to share sale frauds and other scams including, but not limited to, land-banking frauds, Ponzi schemes, and rogue carbon credit schemes. See FCA’s scamsmart, http://scamsmart.fca.org.uk/

JMLSG

See ‘Joint Money Laundering Steering Group’.

Joint Money Laundering Steering Group (JMLSG)

This industry body is made up of financial sector trade bodies. It produces guidance on compliance with legal and regulatory requirements related to money laundering. See the JMLSG’s website for more information: www.jmlsg.org.uk

Know Your Customer (KYC)

This term is often used as a synonym for ‘customer due diligence’ checks. The term can also refer to suitability checks related to the regulated sales of financial products. The Money Laundering Regulations refer to ‘customer due diligence’ and not to KYC.

known close associate of a PEP

Regulation 35(12)(c) of the Money Laundering Regulations defines a known close associate of a PEP as being either an individual known to have joint beneficial ownership of a legal entity or a legal arrangement or any other close business relations with a PEP or an individual who has sole beneficial ownership of a legal entity or a legal arrangement which is known to have been set up for the benefit of a PEP.

KYC

See ‘Know Your Customer’.

land banking scams

Land banking companies divide land into smaller plots to sell it to investors on the basis that once it is available for development it will soar in value. However, the land is often in rural areas, with little chance of planning permission being granted. See: https://www.fca.org.uk/consumers/land-banking-investment-schemes

layering

See ‘placement, layering, integration’.

long firm fraud

A fraud where an apparently legitimate company is established and, over a period of time, builds up a good credit record with wholesalers, paying promptly for modest transactions. Correspondence from bankers may be used by them as evidence of good standing. The company then places a large order, takes delivery, but disappears without paying. This type of fraud is not limited to wholesalers of physical goods: financial firms have been victim to variants of this scam.

MLRO

See ‘Money Laundering Reporting Officer’.

mass-marketing fraud

Action Fraud (the UK’s national fraud reporting centre) says “Mass marketing fraud is when you receive an uninvited contact by email, letter, phone or adverts, making false promises to con you out of money.” Share sale fraud is a type of mass marketing fraud. See: www.actionfraud.police.uk/types-of-fraud/mass-marketing-fraud

Missing Trader Inter-Community (MTIC) fraud

This fraud exploits the EU system for rebating Value Added Tax payments in situations where goods have moved across borders within the EU. National authorities are misled into giving rebates to import-export companies that are not entitled to them.

money laundering

The process by which the proceeds of crime are converted into assets which appear to have a legitimate origin, so that they can be retained permanently, or recycled to fund further crime.

Money Laundering Directive

See ‘Fourth Money Laundering Directive’.

Money Laundering Reporting Officer (MLRO)

The MLRO is responsible for ensuring that measures to combat money laundering within the firm are effective. The MLRO is also usually the ‘nominated officer’ under the Proceeds of Crime Act (POCA).

The MLRO is a ‘controlled function’ under the Approved Persons Regime and a ‘senior management function’ under the Senior Managers and Certification Regime.

Market Abuse Regulation (MAR)

MAR, short for Market Abuse Regulation (EU No.596/2014), entered into force on 3 July 2016. It contains the civil offences of insider dealing, unlawful disclosure of inside information and market manipulation, in addition to provisions to prevent and detect these offences.

Money Laundering Regulations

The Money Laundering Regulations 2007 (SI 2007/2157) transposed the Third Money Laundering Directive into UK law. The Regulations require firms to take specified steps to detect and prevent both money laundering and terrorist financing. The Money Laundering Regulations 2007 were revoked and replaced by the Money Laundering Regulations 2017.

Money Laundering Regulations 2017

The Money Laundering Regulations 2017 (SI 2017/692) transpose the requirements of the Third Fourth Money Laundering Directive into UK law. The Regulations require firms to take specified steps to detect and prevent both money laundering and terrorist financing.

The Regulations identify the firms we supervise and impose on us a duty to take measures to secure those firms’ compliance with the Regulations’ requirements.

Money Laundering Reporting Officer (MLRO)

The MLRO is responsible for ensuring that measures to combat money laundering within the firm are effective. The MLRO is also usually the ‘nominated officer’ under the Proceeds of Crime Act (POCA).

The MLRO is a ‘controlled function’ under the Approved Persons Regime and a ‘senior management function’ under the Senior Managers and Certification Regime.

money service business (MSB)

An undertaking that by way of business operates a currency exchange office, transmits money (or any representations of monetary value) by any means or which cashes cheques which are made payable to customers. (See Regulation 3(1) of the Money Laundering Regulations.) Firms authorised under FSMA must inform us if they provide MSB services. For more information about this, see: https://www.fca.org.uk/firms/money-laundering-terrorist-financing/reporting HM Revenue and Customs supervises the AML controls of money service businesses that are not authorised under FSMA. More information about registration with HMRC can be found on its website:https://www.gov.uk/topic/business-tax/money-laundering-regulations

mortgage brokers, general insurers and general insurance intermediaries

Mortgage brokers, general insurers (including managing agents and the Society of Lloyd’s) and general insurance intermediaries are subject to the high-level regulatory requirement to counter financial crime set out in SYSC 3.2.6R. However, they are not subject to the Money Laundering Regulations or the provisions of the Handbook that specifically relate to money laundering (SYSC 3.2.6ARSYSC 3.2.6JG).

Firms offering these services alongside other products that are subject to the Money Laundering Regulations (such as banking and stock broking services) can therefore apply different customer due diligence checks in both situations. But in practice, many will choose to apply a consistent approach for the sake of operational convenience.

MSB

See ‘money service business’.

MTIC

See ‘Missing Trader Inter-Community Fraud’.

National Crime Agency (NCA)

The NCA leads the UK’s fight against serious and organised crime. It became operational, replacing the Serious Organised Crime Agency, in October 2013. For more information see the NCA’s website:http://www.nationalcrimeagency.gov.uk/ .

NCA

See ‘National Crime Agency’.

NCCT

See ‘non-cooperative countries or territories’.

nominated officer

Regulation 3(1) of the Money Laundering Regulations defines this as “a person who is nominated to receive disclosures under Part 3 (terrorist property) of the Terrorism Act 2000 or Part 7 (money laundering) of the Proceeds of Crime Act 2002”. See section 330 of POCA, Part 3 of the Terrorism Act 2000, and Regulation 21(3) of the Money Laundering Regulations which requires all firms to appoint a nominated officer.

non-cooperative countries and territories

FATF can designate certain countries and territories as being non-cooperative. This indicates severe weaknesses in anti-money laundering arrangements in those jurisdictions. An up-to-date statement can be found on the FATF website. The JMLSG has prepared guidance for firms on how to judge the risks of conducting business in different countries.

occasional transaction

Any transaction (carried out other than as part of a business relationship) amounting to €15,000 or more, whether the transaction is carried out in a single operation or several operations which appear to be linked. (See Regulation 27(2) of the Money Laundering Regulations.)

Any transaction that amounts to a transfer of funds within the meaning of article 3(9) of the Funds Transfer Regulation exceeding €1,000.

Office of Financial Sanctions Implementation (OFSI)

The Office of Financial Sanctions Implementation within HM Treasury is responsible for the implementation and administration of the UK sanctions regime. See: https://www.gov.uk/government/organisations/office-of-financial-sanctions-implementation for more.

ongoing monitoring

The Money Laundering Regulations require ongoing monitoring of business relationships. This means that the transactions performed by a customer, and other aspects of their behaviour, are scrutinised throughout the course of their relationship with the firm. The intention is to spot where a customer’s actions are inconsistent with what might be expected of a customer of that type, given what is known about their business, risk profile etc. Where the risk associated with the business relationship is increased, firms must enhance their ongoing monitoring on a risk-sensitive basis. Firms must also update the information they hold on customers for anti-money laundering purposes.

payment institutions

A ‘payment institution’ is a UK firm which is required under the Payment Services Regulations 2017 (SI 2017/752) to be authorised or registered in order to provide payment services in the UK. This term is not used to describe payment service providers that are already authorised by us because they carry out regulated activities (such as banks and e-money institutions) or that are exempt under the Payment Services Regulations (such as credit unions). For more information, see our publication. For the FCA’s approach to Payment institutions and e-money institutions under the Payment Services Regulations and the Electronic Money Regulations, see https://www.fca.org.uk/publication/finalised-guidance/fca-approach-payment-services-electronic-money-2017.pdf.

PEP

See ‘politically exposed person’.

placement, layering, integration

The three stages in a common model of money laundering. In the placement stage, money generated from criminal activity (e.g. funds from the illegal import of narcotics) is first introduced to the financial system. The layering phase sees the launderer entering into a series of transactions (e.g. buying, and then cancelling, an insurance policy) designed to conceal the illicit origins of the funds. Once the funds are so far removed from their criminal source that it is not feasible for the authorities to trace their origins, the integration stage allows the funds to be treated as ostensibly ‘clean’ money.

POCA

See ‘Proceeds of Crime Act 2002’.

politically exposed person (PEP)

A person entrusted with a prominent public function. See Regulation 35 of the Money Laundering Regulations and Finalised Guidance ‘FG17/16: The treatment of politically exposed persons for anti-money laundering purposes’ https://www.fca.org.uk/publications/finalised-guidance/fg17-6-treatment-politically-exposed-persons-peps-money-laundering.

Ponzi and pyramid schemes

Ponzi and pyramid schemes promise investors high returns or dividends not usually available through traditional investments. While they may meet this promise to early investors, people who invest in the scheme later usually lose their money; these schemes collapse when the unsustainable supply of new investors dries up. Investors usually find most or all of their money is gone, and the fraudsters who set up the scheme have disappeared.

Proceeds of Crime Act 2002 (POCA)

POCA criminalises all forms of money laundering and creates other offences such as failing to report a suspicion of money laundering and ‘tipping off’.

Production Order

The Proceeds of Crime Act 2002 allows Financial Investigators to use production orders to obtain information from financial firms about an individual’s financial affairs.

Proliferation finance

Funding the proliferation of weapons of mass destruction in contravention of international law.

pyramid schemes

See ‘Ponzi and pyramid schemes’.

Recognised investment exchanges, and recognised clearing houses

To be recognised under FSMA, exchanges and clearing houses must, among other things, adopt appropriate measures to:

reduce the extent to which their facilities can be used for a purpose connected with market abuse or financial crime; and

monitor the incidence of market abuse or financial crime, and facilitate its detection.

Measures should include the monitoring of transactions. This is set out REC, which contains our guidance on our interpretation of the recognition requirements. It also explains the factors we may consider when assessing a recognised body’s compliance with the requirements. Regulation 7(1)(a)(vii) of the Money Laundering Regulations confers supervisory functions on the FCA to oversee recognised investment exchanges’ compliance with requirements imposed on them by those regulations.

reliance

The Money Laundering Regulations allow a firm to rely on customer due diligence checks performed by others. However, there are many limitations on how this can be done. First, the relying firm remains liable for any failure to apply these checks. Second, the firm being relied upon must give its consent. Third, the law sets out exactly what kinds of firms may be relied upon. See Regulation 39 of the Money Laundering Regulations and the JMLSG guidance for more detail.

safe deposit boxes

The FCA is responsible for supervising anti-money laundering controls of safe custody services; this includes the provision of safe deposit boxes.

sanctions

See ‘financial sanctions regime’.

SAR

See ‘Suspicious Activity Report’.

Senior Management Arrangements, Systems and Controls sourcebook

See ‘SYSC’.

share sale fraud

Share scams are often run from ‘boiler rooms’ where fraudsters cold-call investors offering them often worthless, overpriced or even non-existent shares. While they promise high returns, those who invest usually end up losing their money. We have found victims of boiler rooms lose an average of £20,000 to these scams, with as much as £200m lost in the UK each year. Even seasoned investors have been caught out, with the biggest individual loss recorded by the police being £6m. We receive almost 5,000 calls each year from people who think they are victims of boiler room fraud. See: http://scamsmart.fca.org.uk

simplified due diligence (SDD)

Regulation 37 of the Money Laundering Regulations allows firms, where they assess that a business relationship or transaction presents a low degree of risk of money laundering or terrorist financing. This regulation sets out a series of factors firms should consider when determining this risk.

SDD does not exempt firms from applying CDD measures but permits them to adjust the extent, timing or type of the measures it undertakes to reflect the lower risk it has assessed. A firm is required to carry out sufficient monitoring of any business relationships or transactions which are subject to those measures to enable it to detect any unusual or suspicious transactions.

Solicitors Regulation Authority (SRA)

The Solicitors Regulation Authority has supervisory responsibility for solicitors under the Money Laundering Regulations. The Bar Council and other professional bodies for the legal sector perform a similar role for their members. See www.sra.org.uk for more information.

Special Recommendations

See ‘FATF Special Recommendations’.

source of funds and source of wealth

‘Source of wealth’ describes how a customer or beneficial owner acquired their total wealth.

‘Source of funds’ refers to the origin of the funds involved in the business relationship or occasional transaction. It refers to the activity that generated the funds, for example salary payments or sale proceeds, as well as the means through which the customer’s or beneficial owner’s funds were transferred.

SRA

See ‘Solicitors Regulation Authority’.

STOR

See ‘Suspicious Transaction and Order Report’.

Suspicious Activity Report (SAR)

A report made to the NCA about suspicions of money laundering or terrorist financing. This is commonly known as a ‘SAR’. See also ‘Suspicious Transaction Report’.

Suspicious Transaction and Order Report (STOR)

A report made to the FCA in accordance with articles 16(1) and 16(2) of the Market Abuse Regulation about any suspicious order or transaction. For more see: https://www.fca.org.uk/markets/market-abuse/suspicious-transaction-order-reports/stor-supervisory-priorities

SWIFT

SWIFT (the Society for Worldwide Interbank Financial Telecommunication) provides the international system used by banks to send the messages that effect interbank payments.

SYSC

SYSC is the Senior Management Arrangements, Systems and Controls sourcebook of the Handbook. It sets out the responsibilities of directors and senior management. SYSC includes rules and guidance about firms’ anti-financial crime systems and controls. These impose obligations to establish and maintain effective systems and controls for countering the risk that the firm might be used to further financial crime’ (see SYSC 6.1.1R, or for insurers, managing agents and Lloyd’s, SYSC 3.2.6R).

SYSC 6.3 contains anti-money laundering specific rules and guidance. These provisions are also set out in SYSC 3.2.6AR to SYSC 3.2.6JG as they apply to certain insurers, managing agents and Lloyd’s. These money laundering specific provisions of SYSC do not apply to mortgage brokers, general insurers and general insurance intermediaries.

terrorist finance

The provision of funds or other assets to support a terrorist ideology, a terrorist infrastructure or individual operations. It applies to domestic and international terrorism.

TF

Terrorist financing (also ‘CTF’).

third party

‘Third party’ is a term often used to refer to entities that are involved in a business or other transaction but are neither the firm nor its customer. Where a third party acts on a firm’s behalf, it might expose the firm to financial crime risk.

tipping off

The offence of tipping off is committed where a person discloses that:

any person has made a report under the Proceeds of Crime Act 2002 to the Police, HM Revenue and Customs or the NCA concerning money laundering, where that disclosure is likely to prejudice any investigation into the report; or

an investigation into allegations that an offence of money laundering has been committed, is being contemplated or is being carried out.

See section 333A of the Proceeds of Crime Act 2002. A similar offence exists in relation to terrorism (including terrorism financing) by virtue of section 21D of the Terrorism Act 2000.

trade sanctions

Government restrictions on the import or export of certain goods and services, often to or from specific countries, to advance foreign policy objectives. See ‘economic sanctions’.

Treasury

The Treasury is the UK government’s AML policy lead. It also implements the UK’s financial sanctions regime through OFSI.

trust or company service provision

A formal legal definition of ‘trust or company service provider’ is given in Regulation 12(2) of the Money Laundering Regulations. A simple definition might be ‘an enterprise whose business creates, or enables the creation of, trusts and companies on behalf of others for a fee’. International standard setters have judged that such services can be abused by those seeking to set up corporate entities designed to disguise the true origins of illicit funds.

The firms we authorise must inform us if they provide trust or company services. For more information about this, see: https://www.fca.org.uk/firms/money-laundering-terrorist-financing/reporting

Trust or company service providers that are not authorised by us have their anti-money laundering controls supervised by HM Revenue and Customs. More information can be found at its website: https://www.gov.uk/topic/business-tax/money-laundering-regulations

verification

Making sure the customer or beneficial owner is who they claim to be. Regulation 28 of the Money Laundering Regulations requires the customer’s identity to be verified on the basis of documents or information in either case obtained from a reliable source which is independent of the person whose identity is being verified. This includes documents issued or made available by an official body even if they are provided or made available to the firm by or on behalf of the customer. It also refers to checking any beneficial owner in a way that the firm is satisfied that it knows who the beneficial owner is; see Regulation 5 of the Money Laundering Regulations.

Wolfsberg Group

An association of global banks, including UK institutions, which aims to ‘develop financial services industry standards, and related products, for Know Your Customer, Anti-Money Laundering and Counter Terrorist Financing policies’. See its website for more: www.wolfsberg-principles.com