FCA withdraws ‘high risk’ country list

The Financial Conduct Authority, the U.K.’s financial regulator, has pulled a controversial list of countries that the organization considers high risk for money laundering and financial crime.

The Cayman Islands government and financial services association Cayman Finance had criticized Cayman’s inclusion and the lack of transparency around the methodology used to draw up the list.

The Cayman Islands government said last week the FCA has confirmed that the information has been removed from its website and there are no plans to publish a similar directory of risky countries in the future.

The previously unpublished list of 95 countries was released by the U.K. regulator on its website on July 18 after it had entered the public domain following a freedom of information request in early July.

The Cayman Islands was the only overseas territory and the only major offshore financial center regarded as “high risk” for financial crime by the financial watchdog.

“Government has been in continuing correspondence with the FCA regarding the list since our first letter of 8 July, and we recently sent correspondence to the U.K. Treasury, and the Foreign and Commonwealth Office, on this matter as well,” Minister of Financial Services Wayne Panton said.

In the letter, the government said it was “astounded” to find Cayman on the list, despite its international compliance track record and high ranking in the assessment by the OECD’s 2013 Global Forum on Transparency and Exchange of Information for Tax Purposes, which put Cayman on par with the U.K. and higher than most G8 countries. “The third-party data and assessments on Cayman’s regime speak impartially and unambiguously regarding the strengths of our system,” Minister Panton said.

Although the list has now been withdrawn, questions regarding the methodology used by the FCA remain, he added.

“Our industry regulator, the Cayman Islands Monetary Authority, will continue the dialogue with FCA officials to ensure they are accurately informed about our regime,” he said.

The FCA has committed to a full review of the methodology, according to the government. It is also proposed that Premier Alden McLaughlin lead a small delegation, including Minister Panton, to the U.K. to further discuss the circumstances around this issue with the Foreign and Commonwealth Office and other U.K. government departments.

In August, the Cayman Islands government questioned the motive for putting Cayman on the list, given the acknowledgements of the robustness of its regime by other international bodies.

The publication of the list had reputational and practical implications as it is used by the FCA to evaluate regulated financial firms’ anti-money laundering compliance, especially during onsite visits by the regulators’ financial crime team, which focuses on a firm’s business relationships with high-risk countries.

Financial institutions in the U.K. are required to develop their own country risk categories based on publicly available information as part of their anti-money laundering regime. After learning of the FCA’s internal high risk country list, financial companies called for its publication to be better prepared in their anti-money laundering efforts.

The release of the FCA list may have caused U.K. financial firms to up their country rating of the Cayman Islands to high risk for anti-money laundering purposes.

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