UK watchdog has no plans to prioritise human trafficking

The UK’s financial services watchdog has no plans to make human trafficking a reporting priority for firms’ financial crime teams. The Financial Conduct Authority (FCA) will not update its guidance to clarify that people smuggling and human trafficking are predicate offences under the Proceeds of Crime Act (POCA). The FCA declined to make an on-the-record comment.

This reluctance remains despite the Home Office, the Foreign, Commonwealth and Development Office (FCDO) and the National Crime Agency (NCA) increasing enforcement activity and policy-making that targets organised immigration crime (OIC).

The FCA says it does not issue prescriptive guidance, and its supervisory work covers a wide range of topics. It has, however, published updates about its expectations for firms’ approach to financial crime systems and controls many times, for example about financial sanctions related to the Ukraine war. In 2023, it published expectations for firms about cash-based money laundering through the UK Post Office. At that time it said it planned “a proactive multi-firm review in the financial year 2025/26, looking at the financial crime risks from cash-based money laundering”.

“Policy tends to drive practice and resourcing,” said Neil Giles, president of the Traffik Analysis Hub at UK charity Stop the Traffik. “It certainly does in the chain of policy leading to action in financial services firms, and itʼs true to say that the FCA has never issued a letter to financial organisations prioritising human trafficking as a reporting issue.

“Itʼs a second-order problem for financial institutions, and therefore a nice-to-do, not a must-do.”

National referral mechanism

The FCA currently categorises people trafficking as a vulnerable customer problem, and includes it in specific FCA guidance. But it fails to mention trafficking and modern slavery in its financial crime guide, or in any other guidance or material.

The FCA does support the National Referral Mechanism (NRM) protocol, which identifies and supports victims of modern slavery. This includes helping them gain access to financial services without having the history necessary for the customer due diligence process. Most high street banks in the UK will, if approached, offer banking services to victims through the NRM, said Giles.

“We applaud that. Obviously, it is great rehabilitation and for reintegration of victims. But what I fear the FCA is missing is the fact that the proceeds of crime — probably north of £15 billion a year in the UK — are passing through financial institutions into the pockets of traffickers, and very low numbers of that [activity] are the subject of reporting and investigation,” he added.

NCA highlights OIC finance

The NCA is currently leading about 70 investigations into individuals or networks involved in the “top tier” of OIC or human trafficking, it said in a February statement. In April, its SARS in Action newsletter highlighted illicit finance and OIC and described their overlap with modern slavery and human trafficking. The report emphasises the role played by informal value transfer systems (IVTS), particularly Hawala banking.

People smuggling, modern slavery and human trafficking-related transactions are identified frequently at banks and other financial services firms, nonetheless. The NCA gave the example of an account being used to deposit cash in order to transfer funds to third parties, which indicated money muling. The same account had been subject to a suspicious activity report (SAR) in relation to another crime, and further investigation developed uncovered links to a modern slavery victim.

Too often, however, firms seek to exit customer relationships that show evidence of human trafficking, OIC and modern slavery, which was what concerned the FCA in this case. It saw multiple reporters submitting defence against money laundering SARs (DAML SAR) to return funds and exit the relationship. The NCA refused these DAML SARs and conducted further investigations, resulting in multiple account freezing orders. Forfeitures totalled over £100,000, it said.

The Institute of Money Laundering Prevention Officers‘ quarterly meeting on May 21 in London will address human trafficking. The panel discussion will discuss the risks within the context of the evolving legislative and regulatory landscape and provide practical suggestions e on how to identify it and how to escalate externally.