Risk Intelligence
The Financial Conduct Authority’s (FCA) 2026 review of financial crime controls highlights gaps in risk management across the asset management and alternatives sector. We examine four practical lessons from the review and from LSEG Risk Intelligence’s latest Meet the Experts webinar.
Key takeaways
Risk assessments should shape controls: An effective customer risk assessment should directly inform customer due diligence, enhanced due diligence and ongoing monitoring, rather than exist as a standalone compliance exercise.
Risk-based due diligence is essential: Firms should tailor controls to risk levels, focusing on understanding and validating wealth journeys through credible, independent evidence.
Accountability cannot be outsourced: While firms can outsource CDD and EDD activities, responsibility for oversight, decision-making, evidence gathering and control effectiveness remains with the firm.
The FCA’s review of financial crime controls in the asset management and alternatives sector provides a timely view of how firms are managing financial crime risk in an increasingly complex operating environment. It identifies examples of effective practice, alongside weaknesses in risk assessment, beneficial ownership verification, ongoing monitoring and governance oversight. As ownership structures become more complex, outsourcing models expand and regulatory expectations rise, firms need to demonstrate that their controls are documented, risk-based and able to withstand regulatory scrutiny.
In the latest LSEG Risk Intelligence Meet the Experts webinar, a panel of experts discusses the FCA’s findings and considers what effective financial crime controls look like in practice.
Four steps to strengthen financial crime controls
Our webinar panellists identify four areas in which firms can strengthen the effectiveness of their financial crime controls:
- Use risk assessments to drive controls
The panellists emphasised that completing firm-wide and customer risk assessments is not enough. Firms must use those assessments to determine proportionate levels of customer due diligence (CDD), enhanced due diligence (EDD) and ongoing monitoring. In short, risk assessments should actively shape the controls applied.
- Apply a risk-based approach
Due diligence should be proportionate to the level and nature of the risk. For example, a risk-based source of wealth (SOW) investigation does not require a firm to trace every pound of an individual’s wealth. It should establish the overall wealth journey, identify the principal drivers and corroborate the explanation using independent evidence.
- Outsourcing and accountability
You cannot outsource accountability: you retain responsibility for outsourced CDD and EDD, including oversight, evidence, quality and decision-making. AI has a role to play in labour-heavy processes like EDD, but should be used as a supporting tool, with human oversight.
- Auditability and record-keeping
Record-keeping is essential, because you need to be able to demonstrate why a decision was made, what information was considered and what evidence supports it.
The views discussed in the webinar reflect the perspectives of the participants and should not be regarded as legal or regulatory advice.
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