Must Read: FSA's proposed guide to cutting financial crime

The FSA has proposed a guide for businesses to avoid becoming "a conduit for financial crime", an area it said small firms have been "weak" to assess and mitigate risks.

Responsibility for financial crime is due to pass to the FSA's successor the Financial Conduct Authority (FCA) - which will regulate IFAs -  as part of the coalition government's shake-up of financial regulation.

Speaking at the FSA's financial crime conference, Tracey McDermott, acting director of enforcement and financial crime at the regulator, said the FCA will continue the FSA's "intensive and intrusive supervision of financial crime issues".

"The FCA will pursue the objectives of keeping crooks out of finance, encouraging industry to strengthen its defences and educating and warning consumers about the dangers they may face," she said.

In a consultation paper on the guide published today, the FSA said past thematic reviews had shown small firms were "generally weak in their assessment and mitigation of financial crime risks".

The proposed guide is not a checklist of things firms should or should not do to reduce their financial crime risk, and will not be used as such by FSA supervisors, the FSA said.

However, it expects firms to "be aware" of the guidance it contains and consider how to translate this into more effective policies and controls.

Here is a break down of some key features of the proposed Guide. Find the consultation paper in full here.

1 Financial crime systems and controls

Governance

Senior management should take clear and responsibility for managing financial crime risks, and provide evidence of this.

Structure

There is no ‘right answer' but the firm's structure should promote coordination and information sharing across the business.

Risk assessment

To apply proportionate systems and controls, firms must gain a thorough understanding of their financial crime risks.

Policies and procedures

A firm must have in place up-to-date policies and procedures appropriate to its business which are readily accessible, effective and understood by all relevant staff.

Staff recruitment, vetting, training and awareness

Firms must employ staff who possess the skills, knowledge and expertise to carry out their functions effectively.

They should review employees' competence and take appropriate action to ensure they remain competent for their role.Vetting and training should be appropriate to employees' roles.

Quality of oversight

A firm's efforts to combat financial crime should be subject to challenge. We expect senior management to ensure that policies and procedures are appropriate and followed.

2 Fighting fraud

Preventing losses from fraud

We expect a firm to consider the full implications of the fraud risks it faces, which may have wider effects on its reputation, its customers and the markets in which it operates.

Management oversight, risk assessment, fraud data and tailored controls on the ground will aid this.

3 Combating bribery and corruption

Governance

A firm's senior management are responsible for ensuring the firm conducts its business with integrity and tackles the risk that the firm, or anyone acting on its behalf, engages in bribery and corruption.

Risk assessment

We expect firms to identify and assess their bribery and corruption risks.

Dealing with third parties

Firms must take adequate and risk-sensitive measures to address the risk that a third party acting on behalf of the firm may engage in corruption.

Staff recruitment, vetting and training

A firm's systems and controls should enable it to satisfy itself of the suitability of anyone who acts for it.

This includes assessing an individual's honesty and competence. The firm should also equip staff with the knowledge and tools to tackle bribery and corruption risks effectively.