AML Regulations: Strengthening AML and CTF oversight in the UK: What Compliance Professionals should know


INSIGHT
Published
Jan 8th '24
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Anti-money laundering regulations: strengthening AML and CTF oversight in the UK.

 

Anti-money laundering (AML) regulations: the battle against money laundering remains a pressing concern for the UK economy, with an estimated annual cost of £100 billion. As the government seeks to combat this formidable threat, it has unveiled a £400 million three-year economic crime plan. This plan is not merely an abstract concept; it aims to address critical gaps in fraud prevention, AML and more.

 

‘the Laundromat’ nickname and the extent of financial crime

The issue of money laundering has become so pervasive in the nation’s capital that London has garnered nicknames like ‘the Laundromat.’ this vivid descriptor underscores the extensive reach of financial crime in the UK. Consequently, the government has recognized the need for more substantial measures to tackle this ongoing challenge.

 

Identifying weaknesses in AML and CTF processes

Several areas of AML and counter-terrorist financing (CTF) processes within the UK have been identified as weak points in the system. The 2018 Financial Action Task Force (FATF) evaluation highlighted these vulnerabilities, particularly in the supervision of the professional services sector. This sector, which includes legal and accountancy firms, constitutes a significant 8.3% of the total economic output for the entire country.

 

UK government’s response- an AML and CTF consultation

In response to the identified weaknesses, the UK government has initiated a consultation to explore potential new regulatory frameworks for AML and CTF supervision. Compliance teams must be acutely aware of the evolving landscape of AML legislation in the UK and the pivotal role they play in upholding the integrity of the system. The outcomes of this consultation will have far-reaching implications for compliance obligations in the UK for years to come.

 

Complex landscape of AML oversight

Regulating AML and CTF within the UK is a multifaceted endeavour governed by the 2017 Money Laundering Regulations. This comprehensive legislation oversees a diverse range of business activities, with oversight responsibilities distributed among twenty-five supervisory bodies. Among these, three hold statutory supervisory roles – the Financial Conduct Authority (FCA), the Gambling Commission (UKGC), and His Majesty’s Revenue and Customs (HMRC). The remaining twenty-two function as Professional Body Supervisors (PBSS), responsible for overseeing legal and accountancy firms.

 

Evaluating the effectiveness of AML supervision

In 2018, the FATF conducted a critical evaluation of the UK’s AML regime, ultimately rating it as “moderately effective.” Notably, the FATF identified “significant weaknesses in the risk-based approach” across all supervisory bodies, excluding the gambling commission, which received praise for its work. Subsequent reports from the Treasury Select Committee in 2021-22 echoed the call for “radical reforms,” citing issues such as inconsistent enforcement powers and inadequate information sharing.

 

Crime and Corporate Transparency Act

In tandem with the AML consultation, the UK government has enacted the crime and corporate transparency act as a key component of its economic crime plan. This legislation grants new powers to Companies House to verify the identities of company directors during registration. The aim is to prevent criminals from using false names for illicit purposes. Additionally, Companies House will share data with law enforcement agencies, enhancing the capabilities for money laundering investigations and aligning with efforts to combat economic crime.

 

Exploring reform models

The heart of the consultation lies in exploring potential reform models to reshape AML/CTF supervision and address the complexities of financial regulations and heightened risks associated with sanctions. Four distinct models are under consideration:

 

  • Model one: strengthening OPBAS+

This model seeks to enhance the existing office for professional body anti-money laundering supervision (OPBAS+) with additional tools. It allows for imposing fines for compliance failings and imposing restrictions on supervised firms.

 

  • Model two: streamlining supervision

Model 2 proposes streamlining AML/CTF supervision by reducing the number of professional body supervisors overseen by OPBAS. Accountancy firms previously under HMRC’s jurisdiction would fall under this supervision.

 

  • Model three: Single Professional Services Supervisor (SPSS)

Model 3 envisions the creation of a SPSS with broad powers and accountability to the treasury.

 

  • Model four: Single Anti-Money Laundering Supervisor (SAS)

Meanwhile, model 4 imagines a SAS that consolidates oversight within a single body, independent and accountable to the treasury.

 

Impact on compliance landscape

A decision on the preferred model, expected by the end of Q1 2024, will significantly impact the compliance landscape in the UK. The consultation also explores the potential for a structured system of sanctions supervision, acknowledging the increased demands and risks associated with sanctions compliance across sectors.

 

Preparing for the future

As the UK government decides on potential supervisory bodies and implements the new sanctions enforcement team, compliance teams must prepare for regulatory changes. Regardless of the chosen model, all proposals emphasize the need for risk-based and data-led approaches to AML/CTF compliance. In anticipation of evolving regulatory landscapes, compliance teams can proactively adopt a risk-based approach now to stay ahead of potential reforms.

 

Navigating sanctions complexities

With sanctions complexities having escalated since Russia’s invasion of Ukraine, the consultation explores the necessity of formal sanctions supervision within the reform models. Data from Moody’s Analytics Grid revealed more than 63 million potential risk alerts related to sanctioned entities globally from January to July 2023. Gaining insight from these alerts, compliance teams can effectively supervise risks associated with their business networks.

 

Conclusion

The decisions resulting from this consultation will reshape compliance obligations in the UK for years to come. Compliance leaders can prepare for the evolving landscape by establishing robust technical foundations, investing in advanced data analytics, and prioritizing enhancements in sanctions screening and customer due diligence. This proactive approach will ensure that compliance programs are resilient and ready to navigate the next phase of the UK’s AML/CTF regime with confidence.

 

If you need any help with planning, structure, framework, testing, monitoring or past business assessments of cases, call us today!

 

If you have AML or KYC/KYB needs, please contact us.

 

Related: AML Regulations UK – AML Review Requirements

 

How we can help

At LS Consultancy, our consultants are industry experts that interpret the rules, regulations and spirit of the industry guidelines by assisting you “the client” in implementing a compliance programme that you can be confident is mitigating the risk of financial crime. What we can do:

 

  • We analyse the relevant jurisdictions legislation, regulation and industry guidance to ensure that your controls adopt the highest standard possible
  • Analyse and/ or Enhance your Business Wide Risk Assessment to ensure we consider money laundering and relevant predicate crimes
  • Assessment of your Customer Onboarding and/ or Periodic KYC reviews rely on independent documentation and supported by credible information from your customer – as this is key to your compliance programme.
  • Robust Transaction Monitoring and Screening whilst utilising your up-to-date KYC documentation/ information are fundamental.
  • Greater emphasis on training – why not go through live examples with your RM’s, Operational Teams and Compliance – discuss the areas of concern and come up with compliant solutions.
  • Ensuring your Compliance Monitoring Programme is conducted on a regular basis
  • Engagement with senior management through relevant committees

 

For further information please contact us where our industry experts will be happy to answer your questions.

 

 

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