UK Action on Money Laundering and Terrorism Financing

This morning Theresa May announced what is being touted as “the most significant change to the UK’s anti-money laundering and terrorist finance regime in over a decade“.

The Action Plan promises “A more effective response to the threat, so that resources can be better targeted at areas of real risk, for example by removing duplication or conflicting compliance advice, will help lift unnecessary bureaucratic burdens that do not contribute to the fight against crime and help resource be used better elsewhere.

The Government is committed to reducing the regulatory burden on business, which can distract or make it harder for companies to focus on real risks and will also ensure that any additional burdens placed on businesses and individuals are targeted, proportionate and justified by evidence of significant need.”

The Action Plan for anti-money laundering and terrorist financing outlines legislative as well as operational actions designed to improve the UK’s response to the threat posed from illicit financial activity. Annex B to the report is the Findings from the Call for Information on the Suspicious Activity Reports (SARs) Regime that also provides some interesting insight on the state of the UK regime.

A few observations:

  1. Joint Money Laundering Intelligence Taskforce (JMLIT) – is perceived as a success and is now being moved to a permanent footing. This is a positive endorsement of public/private partnerships and how sharing expertise and knowledge can have significant impact when countering complex illicit finance. However, one glaring gap is that the representative cadre is still focused on the incumbent financial institutions. As disruption of financial services continues and customers diversify to non-core solutions there is a critical need to proactively address the gap in representation from disruptors as well as non-banking financials. After all this is meant to be a plan for the future.

  2. The importance of information sharing – The Action Plan makes it clear that a key priority is improving the UK’s framework for public/private and international information sharing. There is currently massive complexity and inefficiency in global anti-illicit finance and establishing clear frameworks will breakdown the current silos and present huge opportunities for public and private sector stakeholders.

  3. A need for greater awareness and better training – The plan calls for Prevent campaigns to raise awareness across regulated professionals. Interestingly comments collated in Annex B highlight weakness in the UK reporting and SAR process due to a lack of quality training and knowledge on typologies or ‘what to look for’. Considering that many regulated companies and industries are required to deliver AML and associated training at huge cost would suggest that the current approach is not working and training solutions need to be improved to ensure they are effective.

  4. To what extent are non-banks exposed – Comments in Annex B state “The banking sector is subject to considerable regulation, and is responsible for most SARs. Criminals may have recognised this, and will use other avenues where there is less reporting. Improved oversight, and rationalisation of supervisors in some of the non-bank sectors is required to address this.” There is no denying that criminals are versatile and looking for vulnerabilities to exploit. Businesses need to be alive to this risk and proactively consider and address their frameworks to avoid becoming the target or vehicle of choice.

  5. Information sharing on risks and threats – Respondents in Annex B suggest SAR filing is hampered as there is not enough support available on typologies and threats to help identify suspicious activity. This has wider implications as the foundation of a good financial crime risk management framework has to be built on knowledge of the threats faced, vulnerabilities to those threats and the impacts they may have. A lack of knowledge of the threats and vulnerabilities facing a business has a material impact on the ability to implement proportionate risk management and creates a ‘compliance’ focused strategy.

These reports provide an interesting insight into the current state of UK anti-illicit finance efforts and the perceived priorities for action. How that materialises into physical effect will be interesting to observe.