In its Asset Management Portfolio Letter (February 2025), the FCA outlined that asset management firms should be alert to the risk of being used to facilitate financial crime and should have proportionate risk-mitigating systems and controls, subject to effective oversight. Now, the FCA has published its findings from engagement with 242 asset management and alternatives firms, covering approximately 10% of the sector. In addition to using REP-CRIM data, the FCA issued a questionnaire and interviewed senior staff at a subset of firms.
In this article, we take a look at whether the asset management sector’s management of money laundering risk has moved forward, the nature of the inherent risks in the sector, and some examples of good practice.
Progress, but limited progress
The table below summarises the outcomes of the FCA’s 2013 and 2025/6 thematic reviews into AML controls implemented by firms operating in the asset management sector.
Based on a side-by-side comparison, it appears that the asset management sector’s approach to AML has moved forwards, but not necessarily significantly so. Of course, that’s a sweeping generalisation and the picture looks quite different firm to firm. However, given that half of firms engaged by the FCA had made no enhancements to AML systems and controls in the preceding 24 months, this would indicate that AML is not a high priority in the asset management sector.
Is AML not being a top priority fair under a risk-based approach?
The FCA’s headline expectation is that asset managers maintain systems and controls to mitigate and manage the inherent financial crime risks they face. So, what are those inherent risks?
The inherent money laundering risks in the asset management sector stem from five main drivers:
1. Customer & Investor Risk Profiles
Complex Corporate & Ownership Structures: Asset management frequently attracts investments via multi-layered offshore vehicles, trusts, shell companies, Special Purpose Vehicles (“SPVs”), and family offices. These structures can cross multiple jurisdictions, including secrecy jurisdictions, making it difficult to identify the UBO of assets.
PEPs & Kleptocrats: Businesses pursuing high-net-worth individual (“HNWI”) strategies naturally attract PEPs and ultra-HNWIs. Such individuals, by virtue of their public position, can pose an inherently higher risk of passing illicit proceeds derived from public corruption, bribery, or embezzlement of government/public funds. A desire to shelter assets and preserve wealth can also bring increased tax evasion risk.
Anonymity & Non-Face-to-Face Relationships: Onboarding often occurs digitally or via third-party representatives (i.e. Fund Administrators), increasing the challenge of verifying identity and detecting impersonation or proxy accounts.
2. Product & Asset Class Characteristics
Illiquid & Hard-to-Value Assets: In alternative asset management (e.g., Private Equity, Real Estate, Venture Capital, and Infrastructure), assets are inherently difficult to value independently. Criminals can exploit subjective valuations to inflate asset prices, misrepresent purchase values, or conduct trade-based money laundering.
Lock-up periods are not necessarily deterrents: Criminals and associates with long-term horizons can favour long-term investment vehicles to "park" and legitimise funds safely over time.
Emerging & High-Risk Asset Classes: Funds investing in cryptoassets, private credit, or high-risk offshore ventures can have heightened exposure due to pseudo-anonymity, rapid international transfer capabilities, or lighter regulatory oversight.
3. Distribution Channels & Third-Party Reliance
Intermediaries & Disintermediation: Asset managers frequently rely on third-party distribution channels, such as wealth managers, placement agents, independent financial advisors (“IFAs”) and fund administrators. This distance between the fund manager and the end-investor can reduce direct visibility over the investor's source of wealth.
Omnibus & Nominee Accounts: Capital often enters funds through pooled or omnibus accounts managed by financial institutions. When individual underlying investor identities are aggregated, the underlying capital sources can become obscured.
4. Geographic & Cross-Border Capital Exposure
High-Risk & Secrecy Jurisdictions: Funds sometimes channel capital through offshore financial centers (e.g., Cayman Islands, Luxembourg, Channel Islands) or accept capital from high-risk, sanction-exposed, or corruption-prone regions.
International Capital Flows: Cross-border fund transfers make it easy to execute "layering"—moving illicit money through multiple international accounts and fund structures to blur the audit trail before funds re-enter the ecosystem.
5. Transaction Mechanics & Redemption Risks
High-Value Capital Calls: Investments in asset management typically involve high-value, lump-sum transactions. This can offer a good ‘hiding place’ for illicit proceeds and is arguably less effort for illicit actors than structuring hundreds or thousands of smaller transactions.
Third-Party Payments & Payout Redemptions: Inherent risks spike when funds allow subscriptions to originate from, or redemptions to be paid out to, bank accounts held in names other than the registered investor (third-party funding or redirected redemptions).
In addition to the inherent risks, the UK National Risk Assessment (2025) noted that the sector is perceived to have historically under-invested in risk controls and over relied on third parties. A view which appears to be supported by the FCA’s latest findings.
On the face of it, a sector with increasing opacity, cross-border value movement, obfuscation opportunities and a perception of historic under-investment in controls could be rather attractive to would-be launderers. It is long established that illicit actors will seek the path of least resistance to achieve their objectives of legitimising illicit proceeds.
What does good practice look like?
An effective financial crime risk management programme delivers on three fronts:
Compliance with applicable laws and regulations;
The provision of value and actionable information to relevant authorities;
Proportionate mitigation of inherent exposure to financial crime risks.
Some of the key components of such a programme in the asset management sector include:
BWRA which:
Identifies the firm’s exposure to underlying financial crime threats and vulnerabilities based on its business model;
Enables objective evaluation of the effectiveness of the mitigating controls; and
Is subject to regular review and refresh.
Policies and procedures which are tailored to firm’s business, are approved by the Firm’s Governing Body and enable the operational implementation of the firm’s risk-based approach.
Multi-factor customer risk assessment methodologies which identify higher risk situations requiring additional due diligence or monitoring.
Active and regular monitoring of any outsource partners who execute aspect of the firm’s financial crime risk controls (e.g. CDD) to ensure compliance with the firm’s policies and procedures.
Risk-sensitive ongoing monitoring of customer relationships, including transaction monitoring and CDD refresh.
Name screening at onboarding and thereafter to identify and assess risk indicators related to political exposure, financial sanctions and adverse media.
Regular consideration of financial crime risk exposure and control effectiveness through a firm’s governance structure, including the use of MI to enable senior management decisions.
Clear allocations of internal responsibility for financial crime risk management, including an adequately resourced MLRO function to undertake oversight.
Providing employees (including employees of outsource partners) with financial crime training which is tailored to the firm’s business model, risk exposure and is relevant to their role.
Submitting high quality and timely SARs, when there is internal agreement that circumstances trigger knowledge or suspicion of money laundering.
What should an asset manager or alternative investment firm do now?
The FCA has set out its ‘usual’ next steps, i.e. continue to monitor for improvements and intervene where firms fall short. Asset Managers and alternative investment firms might take note of what intervention on financial crime systems looks like in 2026 in other sectors - an increasing use of supervisory tools, including VREQs, to limit business activities until controls have been appropriately enhanced.
Asset managers and alternative investment firms should:
Review the appropriateness and effectiveness of their current AML systems and controls, in light of inherent exposure to financial crime threats.
Where shortcomings are identified, develop and execute an enhancement plan.
Ensure that AML oversight arrangements (i.e. the MLRO function) are commensurate with the scale and nature of the firm’s business and risk exposure.
Consider proactively engaging with the FCA if material gaps need to be addressed.
Seek external support, if internal capacity or capability is limited.
How FINTRAIL and Cosegic can help
FINTRAIL and Cosegic bring together specialist financial crime expertise with day-to-day regulatory compliance knowledge, giving asset managers and alternative investment firms a single, joined-up source of support at every stage of the AML lifecycle.
Business wide risk assessments: Our teams help firms build, review and refresh BWRAs that properly reflect their business model and inherent risk exposure - closing the gaps the FCA has flagged around incomplete or inadequate assessments. Find out more about our financial crime risk assessments.
Independent audits and assurance: FINTRAIL's audits and assurance service and Cosegic's financial crime assurance reviews give firms an independent, regulator-ready view of how their AML controls are performing in practice, with practical recommendations to close any gaps.
Advisory and retained support: Where firms need ongoing access to specialist expertise - to answer specific questions, support a licensing application, or act as a sounding board for the MLRO function - FINTRAIL's advisory services provide flexible, retainer-based support.
Sector-specific compliance support: Cosegic's investment firms and wholesale investment firms teams work day to day with asset managers, private markets firms and broker dealers, helping embed AML requirements alongside wider FCA obligations such as AIFMD, MiFID II, SM&CR and Consumer Duty.
Outsourced and managed compliance: For firms with limited internal capacity, our managed compliance services provide outsourced regulatory support, AML oversight and reporting delivered by specialists, without the cost of building out a full in-house function.
Training: Tailored financial crime training for staff and outsourced partners, designed around the firm's actual risk exposure rather than a generic annual refresher.
If your firm recognises any of the gaps highlighted in the FCA's findings - whether that's an overdue BWRA, thin MI, or limited oversight of outsourced CDD - get in touch with the FINTRAIL or Cosegic team to talk through where support would add the most value.