The UK’s Financial Conduct Authority plans to action the anti-corruption body Financial Action Task Force’s (FATF) recommendation for widespread use of criminal background checks on owners and controllers of financial institutions.
In a Quarterly Consultation paper CP24/11 published this week, the FCA outlined how it is to consult on introducing compulsory criminal background checks on firm owners and controllers applying for authorisation from January 2025.
Currently, the UK regulator requires only risk-based checks on some applicants.
In a paper the FCA said the risk-based approach means checks are performed when specific concerns about an individual’s fitness and propriety arise.
This was in contrast to other statutory anti-money laundering (AML) and counter-terrorist financing (CFT) supervisors such as HMRC and the Gambling Commission, where such checks are performed routinely.
“In line with the FATF recommendation, the FCA (in agreement with the Prudential Regulation Authority (PRA)) is now proposing to require controllers and beneficial owners to obtain criminal background checks from the Disclosure and Barring Service (DBS) (or equivalent for persons outside of England and Wales).
“This requirement will apply to those making an application for authorisation or registration with the FCA and for a notice of an intended acquisition or increase in control (‘change in control’ or ‘CIC’)”, the consultation statement said.
The regulator also highlighted exceptions to the requirement for DBS checks (or equivalents) is a reasonable measure to assess controllers’ criminal backgrounds.
“However, we recognise that in rare cases this requirement may be unreasonable where, for example, a DBS equivalent cannot be obtained due to jurisdictional limitations. It is likely that these cases will be outliers, as a DBS equivalent is available in most jurisdictions and the processing timescales are broadly consistent with the DBS service in the UK.
“In such circumstances where an individual may not be able to obtain a DBS equivalent, we will conduct a risk-based assessment to determine the appropriateness of this exception, strictly adhering to the established FCA risk tolerance framework.
“We also understand that it may not be possible for proposed controllers to undertake a DBS where a notification of change needs to be completed in rare or unusual circumstances and to extremely short timeframes. In circumstances where such transactions involve individuals, we propose to take a risk-based approach in line with the current FCA risk tolerance framework.
“We believe that these exceptions create a flexible approach, while maintaining standards and supporting the wider aim to prevent criminals from being financial controllers.”
The FCA is inviting comments on the proposals just over a month away by 12 August.
