Skilled Person Report for Firm subject to FCA ‘Minded to Refuse’ letter on their cryptoasset application
Our payments Firm client was subject to a number of areas of scrutiny from the FCA supervisory team.
In reviewing their application to register as a cryptoasset business, the FCA had identified weaknesses in their AML systems and controls, governance arrangements, and management oversight. This was based on a review of their processes, policies, and procedures, as well as Fit & Proper interviews with senior management.
With respect to their application the FCA had issued a ‘Minded to Refuse’ Letter which included extensive feedback outlining multiple areas of weakness that required remediation. The Firm agreed to a voluntary undertaking restricting customer onboarding, as well as the activity of existing customers.
The Firm had undertaken a programme of remediation work to address the issues raised in the FCA’s letter but this had been largely untested. As a result the FCA commissioned a Skilled Person Review for which Pathlight were appointed the skilled person.
This was a single phase review under which we undertook two key streams of work.
Firstly to evaluate the specific areas of weakness identified in the FCA Minded to Refuse Letter as follows:
• Adequacy of the Firm’s Business Wide Risk Assessment;
• Gaps in the Firm’s Policies, Controls and Procedures Customer Risk Assessment;
• Concerns over Governance and Oversight;
• Concerns over Fitness and Propriety of Key Individuals.
Secondly, to conduct a review of the full Financial Crime framework including assessment of governance; roles and responsibilities; skills and capabilities; policies and procedures; risk assessment; compliance monitoring; due diligence processes; screening processes; and training and awareness.
Given the areas of concern our review focused heavily on evaluation of working practices through interviews with key stakeholders and observation of key governance committees. This allowed us to evaluate competencies, the level of oversight and challenge in place and that the right information was being fed through from the business. This was then supplemented by extensive testing to check that the remediated systems and controls were operating effectively.
Our review enabled us to evaluate how the leadership team were operating; the skills and capabilities the Firm had put in place; and the Design and Operating effectiveness of updated policies, procedures, systems and controls.
It allowed us to provide conclusive views to the FCA on the success of the Firms remediation activities on the findings in the ‘Minded to Refuse’ letter and the remaining areas of enhancement that needed to be addressed.
We also expressed a view that any changes made had been against a backdrop of a Firm not onboarding any new business, hence the BAU that we tested was not a realistic reflection of normal operations. The FCA agreed to vary the restrictions so that the Firm could commence onboarding and, given the progress the Firm had achieved, to exit them from the Skilled Person Process.
