FCA censure of bookkeepers body sends AML procedures warning to industry

The FCA confirmed it had censured (pdf, 23pp/273kb) the Institute of Certified Bookkeepers (ICB), which has responsibility for overseeing AML compliance of more than 3,000 bookkeepers across the country, after it was found to have breached key regulations between January 2022 and July 2023.

This included suspending all inspections – both virtual and in person – for nine months, which the FCA ruled seriously undermined the ICB’s ability to check its members’ AML compliance and exposed the sector to increased risk of money laundering activities.

Nicholas Kamlish, a financial regulation specialist at Pinsent Masons, said the decision by the FCA to censure the ICB was particularly notable as it was the first time it had exercised its powers as ‘supervisor of AML supervisors’.

“While the FCA does not have the power to issue financial penalties under the OPBAS Regulations 2017, it does have the power to issue both censures and recommendations to HM Treasury to remove a professional body supervisor (PBS) from the official list of approved self-regulatory organisations,” he explained.

“The FCA can use its usual supervisory powers against a PBS, including the power to require a Skilled Person report. As the FCA waits to get new AML powers from HM Treasury in relation to professional services firms, which may include the ability to impose Skilled Person reviews and financial penalties, the message is clear: the FCA takes AML supervision seriously, and is not afraid to take public action increasingly quickly.”

The FCA looked at the ICB’s supervision and monitoring of members during the period in question, with issues involving the software used to calculate risk assessments of members for inspections, a situation exacerbated when a nine-month suspension of all inspection visits – both in person and via Zoom – was imposed.

During that time, the FCA found the ICB had failed to regularly review or validate risk categories and methodology for categorising risk, because compliance staff responsible did not fully understand how the algorithm used by their AML assessment software worked. The ICB also kept poor records of its supervisory activities during the suspension period.

David Heffron, a financial regulation expert with Pinsent Masons, said the FCA’s decision sent an important message to firms it regulated, which should now look at their own processes to ensure they are in compliance.

“The ICB’s failures in this case flowed from a failure to carry out a holistic risk assessment, to take timely action where issues were identified with information received and data quality, and a lack of governance in relation to a suspension of controls,” he said.

“Firms must prioritise thorough risk assessments, and maintain up-to-date and effective controls - especially where deficiencies are identified. Where there is a decision to suspend any controls, e.g. where there is an ongoing monitoring/periodic review backlog, this must be time-limited, with a clear plan to mitigate risks from the suspension and lift it as quickly as possible.

“Firms which do not do this can expect more than just a public censure.”