In November 2023, a Freedom of information request revealed that the FCA had written to no less than 643 firms earlier in the year, expressing concern about their high turnover of MLROs.

These firms had had three or more MLROs registered with the FCA, across a period of three years.

So, what prompted this sort of turnover, and what can businesses do to keep their MLROs in post – and avoid scrutiny from the FCA?

It's important firstly to note exactly what the role of an MLRO is, and what legal function it holds.

The role of the MLRO

An MLRO – Money Laundering Reporting Officer – is responsible for ensuring that the business is not facilitating any form of money laundering by carrying out its activities. In very small or start-up firms, the MLRO might be the only person carrying out this type of work, whereas in larger organisations, they may have a team reporting to them.

For businesses carrying out regulated activities, there are designated senior manager functions that must be fulfilled. The MLRO usually takes the SMF17 function. In this capacity, they must be approved by the FCA before starting the role, and their name will be added to the FCA register.

"Every SMF holder will have a Duty of Responsibility under the Financial Services and Markets Act 2000 (FSMA). This means that if a firm breaches one of our requirements, the SMF responsible for that area could be held accountable if they did not take reasonable steps to prevent or stop the breach." [FCA – Senior Manager's Regime]

Why the high turnover?

Of course, a high turnover of MLROs does not apply to all or even the majority of financial services businesses. However, there are clear themes coming out of conversations with MLROs that have left or are looking to leave a role after a short period of time.

Culture

If the culture of the business does not facilitate the MLRO to carry out their role within the boundaries outlined by the FCA, as well as to their own standards – then they may feel they have no option but to leave. This could include risk appetites being stretched to accommodate commercial goals, despite the MLRO's recommendations or warnings. It can also be frustrating for an MLRO not to be included in conversations or decisions at leadership and board level, especially considering their personal liability. I've found a key metric for measuring culture is the relationship between sales and compliance, and how the board favours decision making for edge cases that stand to make a lot of money, but are on the very edge of the firms' risk appetite.

Value

MLROs know their own value and worth, but sometimes businesses do not align their remuneration packages with the market value of the MLRO – or the responsibilities and duties they are expected to take on. Some MLROs have reported burn-out and overwork due to non-investment in compliance and financial crime resources by the business.

Risk

As an SMF17, an MLRO could be held accountable for any breaches of FCA requirements. Some MLROs have reported feeling anxious or fearful that the decision-makers in the organisation they are working for, may be authorising activities which leave the firm – and the MLRO – at risk of investigation, fines and reputational damage. At the most serious level, should an MLRO be found to have allowed these activities, this could result in them being removed from the register and their career tarnished.

These three areas can all converge to result in an MLRO feeling unable to stay in their position. At best they may feel undervalued, and at worst that their personal integrity and hard-won career is being compromised.

What can businesses do?

When someone takes a permanent role as an MLRO, in the vast majority of cases they will be expecting to stay in the position for at least a year. To retain them for this amount of time, and longer, businesses can consider the following:

Value the advice

MLROs in most cases are experienced professionals with strong knowledge and experience in their field; use them to accelerate your business. The MLRO can help you stay within the boundaries of regulation while helping you achieve your commercial goals, and should be involved in decision-making throughout.

Value the function

Regulated businesses need to assign an appropriate amount of budget/time/attention to the Compliance and AML function in their business. It's not just a tick box; if funded appropriately, this function can enable your business to excel, grow and succeed, while helping you avoid the huge costs of fines or reputational damage.

Value the person

It's not just about money; in a small or start-up business, MLROs understand that salary may be lower. But look at the whole remuneration package you're offering, and try to make it competitive or you will risk losing your MLRO. It's also important to offer other benefits such as flexible working and pension. You can also make up for what you can't offer in monetary terms, by offering opportunity instead. An MLRO will be likely to stay with a business who gets them involved in all the elements of the journey, and makes it an exciting and inclusive place to be.

Conclusion

As SMF17, the MLRO in a regulated business is of great value. It's important that businesses recruit the right person for their business – but ensure that the environment works both ways in order to retain them. A great working partnership between the MLRO and the business leaders can result in a thriving organisation, which can satisfy regulators and customers alike, while enjoying all the benefits of commercial success.

The best places I've ever worked in are those that realise that compliance is an enabler to do 'good' business, and empowered me to make informed decisions. The worst places I've worked in want the MLRO to be seen and not heard; needless to say, it didn't last long.

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 This blog was written in collaboration with Tony Brown, Chief Compliance Officer at Finteva (ProfPGDip(FCC); Dip(FinCrime); Cert(AML); FICA; CAMS).

Passionate about risk management and driving compliance initiatives, Tony leads with a dynamic, forward-thinking approach. As Chief Compliance Officer at Finteva, he shapes a collective vision, which is centred around making profits with purpose and providing first class service to clients. Tony believes in simple solutions to complex problems and has spent over 20 years in industry helping businesses to understand the difference between 'doing things right and doing the right thing'.