The Treasury has unveiled plans to create a new watchdog that will tackle potential weaknesses in the anti-money laundering supervisory system. The new Office for Professional Body Anti-Money Laundering Supervision (OPBAS) will seek to improve the overall standards of supervision and ensure supervisors and law enforcement work together more effectively.
The news that HM Government is to create such an office is not surprising. Sectors at risk of being used to facilitate money laundering and terrorist financing are supervised by 25 organisations, 22 of which are accountancy and legal services providers’ professional bodies and set down in schedule 3 of the Money laundering Regulations 2007. The complex and unified landscape was therefore ripe for reform and simplification. For more information see Legal update, HM Government to create Office for Professional Body Anti-Money Laundering Supervision.
The Treasury concedes that professional body AML supervisors bring considerable benefits to the regime, as they are closest to the innovations and emerging risks within their sector. However, having several organisations supervising the same sectors and issuing guidance will inevitably lead to an inconsistent approach, and there are vast differences between the standards and resources of the relevant regulators, the greatest contrast perhaps being between the Financial Conduct Authority and the Faculty Office of the Archbishop of Canterbury.
These changes are being introduced in response to the Call for Information on the AML Supervisory Regime and the Cutting Red Tape Review of the UK’s Anti-Money Laundering and Counter Financing of Terrorism Regime. The review revealed a number of criticisms were made of the current regime, including:
- The large volume of supervisor issued guidance creates confusion and unnecessary costs for business.
- The structure of the regime leads to overlapping and duplicated guidance that fails to clearly distinguish between legal requirements and additional good practice suggestions.
- Amongst supervisors there is no consistent approach to the separation of enforcement, supervision and representation functions.
The creation of OPBAS seeks to ensure consistent high standards across the regime, whilst imposing the minimum possible burden on legitimate business. HM Government has stated that OPBAS will set out how professional body AML supervisors should comply with their obligations in the new Money Laundering Regulations, and also have powers to penalise any breaches of the new Regulations.
The OPBAS will operate within the FCA’s existing governance arrangements, funded through a new fee on professional body AML supervisors and legislated for by the end of the year. OPBAS should be operational by the start of 2018, and a Call for Information on its powers and mandate has been launched. The call for information seeks answers to the following questions:
- Are these powers to monitor supervisors’ activities and penalise poor practice sufficient? If more powers should be added, which powers might be?
- Should the OPBAS powers to request information or attendance at interviews be extended to supervisors’ members as well as supervisors themselves?
- Should the OPBAS report annually on other issues, in addition to its performance against its objectives in that year, priorities for the coming year and expectations around emerging risks? If so, which issues should the OPBAS report on?
- The government envisages the OPBAS having representation at the Money Laundering Advisory Committee, the Anti-Money Laundering Supervisors Forum and engaging with the Accountancy and Legal Affinity Groups. What role could the OPBAS best fulfil in each forum, and are there other fora it should attend, and if so, which?
- How might the AML supervisory regime evolve over the next five to ten years, especially in the legal and accountancy services sectors? What are the advantages and disadvantages to the potential options and how might the government help minimise the disadvantages?
- Are there other issues you would like government to take into account as it considers increasing the oversight of AML supervision in the accountancy and legal sectors?
The closing deadline for submissions is 26 April 2017. For more information see Legal update, HM Government publishes anti-money laundering supervisory regime: response and call for further information.
OPBAS will be required to supervise and enforce the updated Money Laundering Regulations, published on 15 March 2017 in draft, which seek to bring the UK’s Anti Money Laundering (AML) and Counter Financing for Terrorism (CFT) regime into line with the latest international standards. The regulations contain a number of additions to the existing Money Laundering Regulations 2007 including changes to scope, due diligence and reliance on third parties, beneficial ownership, and changes to the supervision bodies and enforcement powers. The revised Money Laundering Regulations 2017 must be in force by 26 June 2017.For more information about the updated Money laundering Regulations, see Legal update, Draft Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 published.
Although the argument on consistency is sound, the creation of OPBAS is not a vote of confidence in the past performance of supervisory regimes. This lack of confidence is reflected both in the responses to the cutting red tape review, but also by the lack of enforcement in this area. This point was also made by Practical Law Business Crime and Investigations in a legal update written in May 2016 in response to the SRA’s anti-money laundering report:
The SRA has a substantial and wide ranging portfolio of work to undertake. While their recent efforts regarding money laundering are commendable, the plain facts are they have met with just over 2% of the law firms in England and Wales and produced a 37 page report in nearly two years. That does make a strong case for a single dedicated AML supervisor.
For more information see Legal update, Solicitors Regulation Authority publishes anti-money laundering report.
2017 is going to be a very busy year for anti-money laundering supervisors and the Treasury. Along with the establishing of OPBAS and the successful transposition of the Fourth EU Anti‑Money Laundering Directive to the Money Laundering Regulations 2017, there will be the additional challenges of applying regulations to financial technology firms and virtual currencies, and the next evaluation by the FATF of AML supervision in the UK, which will take place in late 2017 to 2018.
OPBAS is a welcome development, but it must receive the necessary funding and resource to ensure success. One issue yet to be decided is whether the FCA will remain a separate professional body supervisor, and the extent to which other professional bodies will actively supervise anti-money laundering, or simply provide information and support to OPBAS.
Perhaps the bigger question yet to be considered is whether any reform of the reporting regime is planned. The reporting regime is burdensome and creates difficulties for companies who have reported but cannot explain to their clients why transactions are not progressing, yet Section 9 of the Criminal Finance Bill proposes to amend the Proceeds of Crime Act 2002, extending the moratorium period of 31 days after consent has been refused during which a constable or officer can take further action to prevent the transaction up to a total of 186 days. Such a lengthy moratorium, without a right of challenge, arguably places professionals into real positions of conflict with their clients and at risk of being reported to their professional bodies when all they are doing is complying with the law. This measure is crying out for further guidance and refinement.