The U.K. Financial Conduct Authority (FCA) used its powers under the Proceeds of Crime Act (POCA) to force fintech firm QPay Europe to forfeit 2 million pounds (U.S. $2.5 million) alleged to be linked to a U.S.-based wire fraud conspiracy.
In a statement released April 21, the regulator claimed the money was the proceeds of illegal activity connected to criminal proceedings in the United States relating to an alleged conspiracy to commit wire fraud against banks, credit card companies, and other financial service providers.
The FCA did not allege QPay, which carries out underwriting and due diligence services, is involved in the conspiracy.
The regulator’s concerns were initially raised following an application by QPay to become a regulated firm in March 2020, when it discovered a series of suspect transactions and found failings in the fintech firm’s anti-money laundering (AML) procedures. QPay has since withdrawn its application to be a regulated firm.
QPay received money from software firm Fintech International Q Software WLL, allegedly as an investment. QPay repeatedly moved the money to different bank accounts in several countries and, according to the FCA, “none of the transactions appeared to be related to legitimate business.”
“Challenger banks, crypto exchanges, and fintech firms are all going to face significant regulatory scrutiny, just like financial institutions have for decades. We are in a significant period of financial innovation, and by necessity this will create compliance-related challenges. As innovative businesses grow, they need to make sure their compliance function keeps pace with the business.”
Jonah Anderson, Partner, White & Case
The money, located in seven accounts, was frozen in urgent proceedings brought by the FCA in October and December 2020. The regulator applied for the money to be forfeited in October 2021.
While U.K. law enforcement agencies have made good use of freezing orders since they became available in 2018, legal experts said this is the first public announcement the FCA has made about using them to fight financial crime.
Between 2020 and 2021, some £107 million (U.S. $134 million) was recovered via account freezing orders, up by 52 percent on the previous financial year, according to the U.K. government.
Mark Steward, the FCA’s executive director of enforcement and market oversight, stated, “Account forfeiture orders are an important means of intervening and capturing illegal money, and this action is a good example of what can be done.”
Financial crime experts believe the FCA’s action shows the regulator has the necessary legal powers to tackle suspected AML cases properly and knows how to use them. They also believe the financial services sector needs to take AML compliance seriously, particularly new entrants.
Michael Goodwin, barrister at law firm Red Lion Chambers, said the threshold for obtaining freezing orders is low, so he expects the FCA “will look to increasingly use forfeiture orders as part of their published drive to combat financial crime.” As a result, “Strengthening due diligence and AML procedures to mitigate such risks is an obvious first step for all fintechs,” he said.
“Challenger banks, crypto exchanges, and fintech firms are all going to face significant regulatory scrutiny, just like financial institutions have for decades,” said Jonah Anderson, partner at law firm White & Case. “We are in a significant period of financial innovation, and by necessity this will create compliance-related challenges. As innovative businesses grow, they need to make sure their compliance function keeps pace with the business.”
Thomas Cattee, white-collar crime partner at law firm Gherson Solicitors, described the FCA’s action as “a shot across the bow to those in this sector.” He added the move shows “U.K. regulators will not hesitate to use all the powers available to them, including those under the Money Laundering Regulations and the POCA. The regulators are certainly showing they can effectively choose the correct legislation to successfully pursue wrongdoers under.”
Cattee added following NatWest’s £264.8 million (then-U.S. $350 million) fine for AML failures in December, the financial services sector as a whole is under much greater scrutiny. “This is clearly not an issue exclusive to fintechs,” he said.