In addition to the successful outcomes of the FATF Mutual Assessment Report, the UK Government's 2020 National Risk Assessment (NRA) regarding money laundering and terrorist financing acknowledges the ever-evolving nature of these threats. The report highlights the need for ongoing efforts to combat these illicit activities and protect the integrity of the UK's financial system.
To this end, the UK has implemented a number of measures aimed at preventing money laundering and terrorist financing. These include enhanced due diligence requirements for high-risk customers, increased scrutiny of politically exposed persons (PEPs), and improved information-sharing between financial institutions and law enforcement agencies.
The UK's commitment to combating money laundering and terrorist financing is reflected in its participation in international efforts to combat these threats. The UK is a member of the FATF and has implemented its recommendations, as well as those of the EU's Anti-Money Laundering Directive.
UK's 2020 National Risk Assessment underscores the importance of ongoing vigilance in the fight against money laundering and terrorist financing. By continuing to implement effective measures and collaborate with international partners, the UK is working to protect its financial system from these threats and safeguard the integrity of its economy.
What is National Risk Assessment?
The National Risk Assessment was developed by the World Bank and is used as the Money Laundering and Terrorist Financing Risk Assessment. However, it offers action plans for eight groups engaged in financial activities; these groups are:
- Subject Analysis Group
- National Vulnerability Assessment Group
- Banking Sector Vulnerability Group
- Securities Sector Vulnerability Assessment Group
- Insurance Sector Vulnerability Assessment Group
- Other Financial Institutions Vulnerability Assessment Group
- DNFBPs Vulnerability Assessment Group
- Financial Access Product Risk Assessment Group
The high risk of studies conducted in AML risk assessments should be defined and evaluated according to their risk status. Especially tasks defined as high risk by the National Risk Assessment are critical. According to the NRA, trust and company building, transfer, and customer account services are defined as the highest-risk activities.
Organizations operating in these areas should be aware of the latest AML Regulations to reduce the risks. They should alert you to any risk situation. Finally, businesses should document the measures they take to minimize these risks and set their policies accordingly.
National Risk Assessment in the UK
Financial Action Task Force (FATF) has been reviewing the UK's money laundering (AML) and counter-terrorism financing (CTF) regime since 2017. According to the reviews, England has the best score among more than 100 countries evaluated.
The UK has a solid understanding of money, according to the FATF. The directives to be followed in the United Kingdom (AML) counter-terrorism financing (CTF) areas under the NRA 2020 are as follows: Applying a risk-based approach to auditing.
Shortcomings in the dubious activity reporting (SAR) regime in the UK. Accuracy of industry data held at Companies House. The report also remarks that the UK has experienced significant legal changes in financial crimes in the last three years. The reasons for these changes include the impacts of Brexit, the UK's Sanctions, the 2018 AML Act, and the provisions of the 5th AML Directive implemented in 2020.
According to NRA:
National Risk Assessment 2020 also touches on the essential points of the Covid-19 outbreak and emphasizes that the epidemic has been increasing. From a financial perspective, this process has led to increased crimes related to money laundering and terrorist financing.
One of the factors that changed according to the evaluation is individual spending habits. With the increased rate at which banking and other financial activities occur online, it has become more challenging to detect criminals. Finally, under the new regulations, businesses had to change their approaches and strategies.
The UK Government stated in the 2020 NRA that "traditional" sectors associated with financial crimes have a "High" risk score. According to the Report, industries and services with high-risk scores for money laundering and terrorist financing are:
- financial services
- accounting services
- legal services
- money services businesses.
Also, the sectors that increase the risk level, according to the 2020 NRA, are as follows:
- The crypto assets scored low for both money laundering and terrorist financing in 2017 and were raised to "Medium" in 2020.
The UK Government has confirmed that as of January 2020, some crypto-asset market participants are now included in the UK money laundering regulations. However, he states that crypto assets have exposed extensive criminals in the last three years and enabled new money laundering methods.
- While the real estate sector has a medium risk score for money laundering, it was determined as 'high' in 2020.
The large amounts of real estate property are among the most significant factors that increase the money laundering risks in this sector. Also, the UK market is open to foreign investment. Thus, it becomes vulnerable to outside threats.
- Art Market has been evaluated for the first time as part of the NRA and given a high-risk level.
Finally, like Crypto assets, the art market is a newly regulated sector under UK money laundering regulations from January 2020.