How can insurance firms improve their financial crime systems and controls?

The Financial Conduct Authority (FCA) recently published its multi-firm review of insurance firms. The review provides a snapshot of how well the insurance sector is responding to increasingly sophisticated financial crime risks, as well as providing an assessment of how insurers and intermediaries manage these risks such as fraud, sanctions breaches, and money laundering. Notwithstanding the existence of established governance frameworks and controls, firms need to ensure that the actual implementation of those controls is tailored, effective, and capable of adapting as risks evolve.

Financial crime controls cannot simply exist as paper guidelines; they must reflect the actual risks faced by different businesses. Risk assessments, customer due diligence, and transaction monitoring need to be focussed on the actual products, distribution channels, and customer profiles of each business unit.

The clear message is that insurers should move beyond a compliance-led approach to a more comprehensive and active approach using experience of actual risks and threats.

Steps insurance firms can take

There are a number of practical steps insurance companies can take to strengthen their financial crime systems and controls, including:

• regularly refreshing business-wide risk assessments,
• using management information in a way that identifies emerging trends, and
• ensuring that customer due diligence is maintained throughout the customer lifecycle rather than solely at onboarding.

Additionally, governance boards need to receive meaningful reporting that enables them to assess whether controls remain effective as financial crime risks evolve.

The risks of getting it wrong

Failing to address the weaknesses highlighted by the FCA exposes insurers to significant regulatory, financial, and reputational risk. Ineffective financial crime controls can increase the likelihood that firms may be exploited for fraud, sanctions breaches, or other illicit activity, undermining both market integrity and customer trust.

The regulator has made clear that financial crime remains a supervisory priority, and deficiencies in areas such as risk assessment, governance and oversight can trigger closer scrutiny, skilled person reviews, or enforcement action. Where firms cannot evidence how risks are identified, assessed, and mitigated, they may struggle to demonstrate compliance with core obligations under the regulatory framework.

Reputational damage is often the most immediate consequence. Public enforcement action or high‑profile control failures can erode stakeholder confidence, impact insurer–broker relationships, and weaken competitive positioning in a market where trust is critical.

Ultimately, the FCA’s findings underline that financial crime frameworks must be dynamic, well‑evidenced, and embedded across the organisation.

Effectiveness, rather than the existence of policies, will increasingly be the benchmark. To meet regulatory expectations (and the wider objective of protecting the integrity of the insurance market), firms must demonstrate risk-based decision-making, robust oversight, and continuous improvement.

If you have questions or concerns about the findings, please contact Patrick Selley.