The recent "Dear CEO" letter sent jointly by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) to firms that carry out trade finance business provided a clear and unequivocal message around the expectation of Regulators with regards to trade-related financial crime risk assessments.

The letter points out that the Regulators "have found that firms have either failed fully to assess these risks, are unable to evidence the checks they have undertaken, or in some cases discounted them inappropriately" and sets out the expectation that firms should conduct a robust financial crime risk assessment that covers risks including money laundering, sanctions evasion, terrorist financing and fraud.

There is a clear suggestion that in the future those risk assessments are likely to be reviewed as part of supervisory activities.

However, the letter also contains some suggested steps for firms to consider when performing a trade-related financial crime risk assessment. These steps include but are not limited to:

  • Factoring into the risk assessment transaction-specific red flags - the Financial Action Task Force (FATF) and the Egmont Group of FIUs published earlier in 2021 a report setting out Trade Based Money Laundering Risk Indicators which may help ;
  • The use of specialised marine intelligence tools such as vessel tracking - some providers now offer container level tracking and leverage advanced technology such as AI (artificial intelligence);
  • Recognising that the risk profile of the client will help determine the level of due diligence that is required at the transaction level - if you don't get the client risk assessment right, problems could arise in the future;
  • Documenting the risk assessment within the wider business risk assessment; and
  • Identifying the types of customers or transactions where enhanced due diligence is needed.

Performing a trade-related financial crime risk assessment can be a daunting challenge as the risk factors are varied and complex and skilled resources are often limited. If you would like some help in this area, please contact Neal Ysart, Lead Regulatory & Investigations Advisor  at   /  Tel: +971 55 138 9250  or your usual Clyde & Co point of contact.