Financial crime is one of the highest yield areas in R01. The learning outcome carries a reliable number of questions every sitting, the content rarely changes, and the answers are precise rather than judgemental. Candidates who spend two focused evenings on this topic usually see a measurable jump in mock scores.
The legal framework
Four pieces of law and regulation sit behind the questions:
- Proceeds of Crime Act 2002 (POCA), which creates the principal money laundering offences
- Terrorism Act 2000, which mirrors POCA for terrorist property
- The Money Laundering Regulations, which impose systems, customer due diligence and record keeping duties on firms
- The FCA Handbook, principally SYSC, which requires adequate systems and controls and an annual financial crime report from larger firms
The Joint Money Laundering Steering Group guidance is not law, and courts and the FCA will take account of whether a firm followed it. Questions often test that distinction.
The three stages
| Stage | What happens |
|---|---|
| Placement | Criminal proceeds enter the financial system, for example cash deposits or premium payments |
| Layering | A series of transactions and transfers obscures the audit trail |
| Integration | The funds return to the criminal in an apparently legitimate form, such as investment income or property sale proceeds |
Single premium bonds, early surrenders at a loss and overpayments followed by refund requests are the classic placement and layering signals in a financial planning context.
The offences and penalties
| Offence | Maximum penalty |
|---|---|
| Concealing, arranging or acquiring criminal property | 14 years and an unlimited fine |
| Failure to disclose a suspicion | 5 years and an unlimited fine |
| Tipping off | 2 years and an unlimited fine |
| Terrorist financing offences under the Terrorism Act | 14 years |
Memorise the 14, 5 and 2 pattern. Exam questions frequently ask for the maximum sentence attached to a named offence, and the marks are unforgiving.
Customer due diligence
Standard due diligence means identifying the client, verifying that identity from reliable sources, and understanding the purpose of the relationship. Two variations are tested:
- Simplified due diligence where the risk is demonstrably low, for example a UK regulated pension scheme
- Enhanced due diligence, mandatory for politically exposed persons, their family and close associates, for high risk third countries, for correspondent relationships and for any unusually complex or unexplained arrangement
A PEP relationship needs senior management approval, establishment of the source of wealth and funds, and enhanced ongoing monitoring. That trio of requirements is a common three mark question.
Records must be kept for five years from the end of the relationship or the completion of the transaction.
Reporting duties
An adviser who forms a suspicion reports internally to the money laundering reporting officer. The MLRO decides whether to make a suspicious activity report to the National Crime Agency. The adviser is protected once the internal report is made, and the protection is lost if the adviser goes on to tip off the client. Where consent is needed to proceed with a transaction, the firm must wait for the notice period to expire or for consent to be given.
Sanctions
Sanctions compliance is separate from money laundering and works on strict liability. Firms must screen against the UK Sanctions List maintained under the Sanctions and Anti-Money Laundering Act, and dealings with a designated person require a licence from the Office of Financial Sanctions Implementation. Unlike an AML suspicion, a sanctions match blocks the transaction outright, and there is no de minimis.
Bribery
The Bribery Act 2010 creates four offences: offering a bribe, receiving a bribe, bribing a foreign public official, and the corporate offence of failing to prevent bribery. The only defence to the corporate offence is having adequate procedures in place. Corporate hospitality is not automatically a bribe, and proportionality and intent decide the outcome.
Market abuse
The UK Market Abuse Regulation covers three behaviours:
- Insider dealing, dealing on inside information
- Unlawful disclosure of inside information
- Market manipulation, including creating a false or misleading impression of supply, demand or price
Insider dealing can also be a criminal offence under the Criminal Justice Act 1993, with a maximum of ten years. Firms must maintain insider lists, and issuers must disclose inside information promptly.
Data protection overlap
Financial crime questions often extend to data handling. Under UK GDPR and the Data Protection Act 2018 the principles include lawfulness, purpose limitation, data minimisation, accuracy, storage limitation, integrity and accountability. Personal data breaches likely to risk individual rights must be reported to the Information Commissioner within 72 hours, and the maximum fine is the higher of £17.5m or 4% of global annual turnover.
Study plan for this learning outcome
- Learn the offence and penalty grid until you can write it out cold
- Learn the three stages with one financial services example each
- Learn the four Bribery Act offences and the adequate procedures defence
- Learn the three market abuse behaviours
- Drill the timelines, five year records, 72 hour breach reporting, and annual financial crime returns
Financial crime rewards precision. There is very little interpretation involved, which makes it one of the few R01 areas where thorough revision converts almost directly into marks.