Many small businesses do not have adequate systems and controls in place to combat financial crime and fail to customise solutions provided by external consultants, according to the Financial Services Authority.

The FSA recently published the findings of its review into small firms’ anti-financial crime systems and controls. This covered areas such as money laundering, financial sanctions, data security and fraud controls.

The review identified that a number of companies’ financial crime systems and controls have weaknesses. The FSA says few firms have appropriate due diligence systems in place to identify or deal with higher risk customers or situations.

The report found that over half of the small firms questioned rely on policies and procedures prepared by consultants that have not been specifically tailored to their business.

Many small firms do not have appropriate formal vetting and referencing procedures for staff and are not doing enough to meet their fraud risk obligations.

Less than half the firms visited carried out full background checks or referencing before appointing staff. The majority of these firms indicated that their employees were family or close friends or had been referred by a known and trusted associate.

“Collectively small firms can pose significant risks to the FSA’s statutory objective to reduce firms’ vulnerability to financial crime. It is important that small firms understand what their responsibilities are in this area,” said Bob Ferguson, FSA head of financial crime.