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Check clients for terrorist blacklisting, firms warned

Mortgage brokers are believed to be falling foul of the regulator by failing to check their clients against an HM Treasury blacklist.

Under Treasury legislation, a financial firm can commit a criminal offence by transacting with or providing advice to individuals with links to terrorism.

The Treasury publishes a blacklist of such individuals on its website against which firms are expected to check their client database as part of their compliance with the Financial Services Authority’s financial crime requirements.

SanctionsSearch.com director Chris Clare says that until recently compliance has been patchy, but in the last six months the FSA has been scrutinising the issue more closely.

He says: “Feedback from clients suggests impromptu checks by the regulator on whether sanctions lists are up-to-date are increasingly frequent, with the issue being raised in standard FSA visits to many brokers.

“The rules on this have not been well communicated and lots of firms, especially small ones, are not even aware of them. But the FSA fined the Royal Bank of Scotland for failing to check the list in 2010, so it will not shy away from fining smaller firms.”

Bill Warren, managing director of Bill Warren Compliance, adds: “I’m not surprised the FSA is talking to firms about this. It is not covered in the regulator’s Handbook so many brokers will be unaware of the checks they need to carry out.”

The FSA published guidance on financial sanctions for small firms last month, in which it said it is good practice to check existing clients against the list, check all new customers before providing any services or transactions, and keep abreast of any updates to the list.

It says a recent review found inadequacies in the controls to reduce the risk of a breach of financial sanctions at firms of all sizes.

The guidance says: “Small firms in particular should improve their awareness of the UK financial sanctions regime.”

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