What happened?
The Financial Conduct Authority conducted a comprehensive multi-firm review of insurers’ financial crime controls, requiring a selection of large firms to submit detailed documentation across ten key risk areas. While basic frameworks are largely in place, the regulator concluded that these controls are not consistently embedded in daily insurance operations.
Scrutiny is shifting from theoretical control design to actual operational effectiveness. Insurers must now prove that their frameworks actively mitigate risks across business units, product lines, and third-party relationships.
Why does it matter?
The financial crime risks facing retail insurers, wholesale intermediaries, and life insurers vary significantly. To withstand regulatory scrutiny, firms must provide tailored, documented evidence of their risk decisions. Proportional due diligence approaches must be guided by clear operational rationales and explicit escalation triggers.
Furthermore, insurers cannot outsource their compliance obligations. Robust, active oversight of third-party distribution chains and claims management is an essential element of a firm’s financial crime framework.
Who is affected?
This regulatory review directly impacts senior managers, money laundering reporting officers (MLROs), and risk leaders within the retail, wholesale, and life insurance sectors.
Key risks
- Generic Risk Assessments: Relying on high-level or standardized assessments that fail to connect to a firm’s actual operating model.
- Undocumented Due Diligence: Inability to justify why different levels of client or partner scrutiny are applied in various business scenarios.
- Weak Outsource Oversight: Failing to actively monitor, manage, and escalate financial crime risks embedded within outsourced operations.
Actions to take
- Ground Risk Assessments: Review and update risk assessments to reflect specific product structures, payment flows, and operating models.
- Document Due Diligence: Establish explicit, recorded rationales for customer risk ratings, escalation thresholds, and due diligence boundaries.
- Provide Practical Guidance: Equip operational teams (underwriting, claims, and sales) with detailed, scenario-specific compliance guidance.
- Map Governance Controls: Map financial crime obligations directly to specific controls, accountable owners, and comprehensive management information.
Wider implications
The FCA expects an integrated approach to financial crime compliance. Individual components, such as risk assessments, governance, and third-party oversight, must operate seamlessly as a single, defensible framework.
Recommendations
Insurers should conduct independent reviews of their existing financial crime controls to verify consistency and deploy specialist resource to close any operational gaps rapidly.
TCC works with insurance firms to assess how financial crime controls operate across their full framework. We also support insurers through financial crime interim resourcing, providing external specialists who can embed within teams to strengthen controls, improve consistency and help evidence how frameworks operate.
Supporting sources
Frequently asked questions
What is the key takeaway from the FCA's insurance review?
Frameworks are generally established but lack deep operational integration, meaning firms must now prove that their financial crime controls work in practice.
How should insurers handle due diligence decisions?
Firms must define and document clear, defensible boundaries and rationales for why different levels of customer scrutiny are applied in different scenarios.
Does outsourcing transfer financial crime responsibility?
No. Insurers remain fully accountable for their financial crime controls when outsourcing activities, making active third-party oversight and evidence critical.
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