The latest supervisory report of the UK’s anti-money laundering/counter-terrorist financing activities was recently published by Her Majesty’s Treasury (HMT or HM Treasury).
The foreword provides a good introduction (it’s not a small document):
The UK is one of the world’s largest and most open economies. Whilst the majority of financial transactions through and within the UK are entirely legitimate, its openness and status as a global financial centre brings with it the heightened risk of illicit financial flows from money laundering and terrorist financing. Such risks threaten our security and prosperity. To ensure the integrity of our financial system, protect communities and support legitimate businesses, the government has taken robust action to clamp down on illicit finance.
The UK’s anti-money laundering (AML) and counter-terrorist financing (CTF) supervisory regime is comprehensive and the UK’s response to economic crime has been recognised as world-leading. In December 2018, the Financial Action Task Force (FATF), the global standard-setter for AML/CTF, found that the UK had one of the toughest systems for combatting money laundering and terrorist financing of any country it has assessed to date.
Such a result is indicative of the effectiveness of steps taken by the government, particularly in partnership with the private sector, to create an increasingly robust regime. Nevertheless, the FATF noted shortcomings in the preventative measures that regulated firms take under the Money Laundering Regulations 2017 (MLRs) to detect and deter money laundering and terrorist financing. FATF also identified inconsistencies in the performance of the 25 supervisors, whose role it is to monitor, facilitate and ensure compliance with the MLRs, and, in particular, the 22 professional bodies in the accountancy and legal sector. The government recognises that there is more work to be done and we are working to strengthen the regime further by implementing FATF’s recommendations.
We continue to work in partnership with the private sector to deliver on our aim to ensure the UK’s financial system is hostile to illicit finance. The Economic Crime Plan articulates the collective action being taken to enhance the UK’s response to economic crime over the next three years and includes, as one of its strategic priorities, a commitment to enhance the risk-based approach to supervision.1 The Economic Crime Strategic Board will continue to hold supervisors accountable for delivering their Economic Crime plan commitments in full.
This year, the government has transposed the vast majority of the Fifth Anti-Money Laundering Directive into domestic law. This transposition ensures the UK’s AML/CTF regime remains comprehensive, responsive to emerging threats, and in line with evolving international standards set by FATF.
The government recognises the importance of developing and maintaining a robust and shared national understanding of money laundering (ML) and terrorist financing (TF) risks. The National Risk Assessment (NRA) is the definitive high-level assessment of money laundering and terrorist financing risk in the UK. The 2020 NRA, to be published later this year, will serve as a stocktake of our understanding of these
risks, including how they have changed since the 2017 NRA. This will inform government and supervisors’ continuing work to prevent terrorists and criminals moving money through the UK and to ensure that the UK’s AML/CTF regime remains robust, proportionate and responsive to emerging threats.
Effective supervision is key to a successful risk-based regime, that focusses supervisory and law enforcement resources on the highest risk but does not place unnecessary burdens on business. The more effective the UK’s supervision regime is, the more we can reduce the vulnerability of the financial system to illicit finance, lessening the pressure on law enforcement.
The work of the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), established in January 2018, continues to ensure that the 22 legal and accountancy professional body AML supervisors adopt consistent and high standards of supervision. In 2018, OPBAS conducted supervisory assessments of each of the 22 professional body supervisors (PBSs) and published an overview of their findings. In March 2020, they published a report on progress and themes from 2019, based on their ongoing supervision and made a number of observations. They include an increase in the use of supervisory tools by PBSs (indicating a move towards more proactive supervision), increased levels of intelligence and information sharing, both between PBSs and with law enforcement agencies, and improvement in AML enforcement activity.
However, whilst they found that there has been strong improvement across both the legal and accountancy sectors, they concluded that there is still work to do in assessing the effectiveness of the strategies PBSs have put in place to address weaknesses. I have continued to meet regularly with the senior leaders of the professional body AML supervisors to recognise the progress made and to emphasise that the government expects more to be done to tackle illicit finance in the professional services sectors and the importance that I place on the work of OPBAS to be. I will continue to engage with the professional body supervisors to ensure these issues are being addressed.
I will also be looking to the statutory AML supervisors – the Financial Conduct Authority (FCA), HM Revenue and Customs (HMRC) and the Gambling Commission – for evidence of continued improvements in their effectiveness.
Given the size and importance of the UK’s financial sector and the high ML/TF risks it faces, effective and risk-based supervision by the FCA is critical to the overall effectiveness of the UK’s AML/CTF regime. Since 2015, the FCA has prioritised tackling financial crime and is committed to improving intelligence sharing with the government and relevant agencies and to use intelligence, data and technology to improve their approach to AML. As part of the Economic Crime Plan, HMRC has committed to delivering an enhanced risk-based approach to AML/CTF supervision, supported by the recent increase in charges to its supervised population. This will allow HMRC to carry out more interventions, giving the supervisor greater coverage of its supervised businesses and intensifying its focus on disrupting illicit finance. The FATF MER found that the Gambling Commission had a good understanding of the ML/TF risks in the gambling sector and applied risk-based approach to supervision. I will look to the Gambling Commission for a continuation in their high standards of AML/CTF supervision.
There have also been improvements in the strength of action taken by statutory supervisors against non-compliance, including the second largest financial penalty for AML controls failings ever imposed by the FCA.
The Treasury will continue to monitor improvements in the supervision regime through the Economic Crime Delivery Board, as it monitors progress against the plan’s actions; ongoing engagement at official level; and its annual supervision reports.
I would like to thank the supervisors for their contributions to this report and their ongoing collaboration. The Treasury is committed to continuing to work in partnership with the supervisors as we lead the global fight against illicit financial flows.
Here’s the table of contents, other than the foreword:
Chapter 1 – Introduction
Chapter 2 – Methodology
Chapter 3 – Supervisory activities
Chapter 4 – Promoting and ensuring compliance
Appendix A – List of Supervisors
Appendix B – Definitions of sanctions & penalties
Appendix C – FATF key findings and recommended actions
Appendix D – Economic Crime Plan actions
The report does break out the work of the Financial Conduct Authority (FCA), Her Majesty’s Revenue and Customs (HMRC), the Gambling Commision and Professional Body Supervisors (PBS). There are copious numbers of tables, and case studies.
Of course, being an AML/CTF report, the work of the UK’s sanctions regulator, the Office of Financial Sanctions Implementation (OFSI), is not included.