On June 30, 2023, a significant stride towards combating money laundering and terrorism financing was taken as His Majesty's Treasury (HM Treasury) unveiled a groundbreaking consultation paper on the Reform of the Anti-Money Laundering and Counter-Terrorism Financing Supervisory Regime. This momentous release marks a crucial milestone in the United Kingdom's relentless pursuit of a more robust and effective AML/CTF framework. As part of the comprehensive Economic Crime Plan (2023-2026), this consultation paper aims to address the alarming supervisory weaknesses identified in the country's non-financial sector, as repeatedly brought to light by various reviews conducted since 2015.
Despite the establishment of the Professional Body Anti-Money Laundering Supervision (OPBAS) in 2017, which was designed to oversee AML/CTF compliance in non-financial sectors, HM Treasury recognizes the need for further progress in combatting financial crimes. Thus, this consultation paper presents an array of four alternative reform models, setting the stage for in-depth analysis and inviting extensive feedback from industry experts, regulatory bodies, and concerned stakeholders.
Addressing UK's AML/CTF Supervisory Gaps
The release of the consultation paper on the Reform of the Anti-Money Laundering and Counter-Terrorism Financing Supervisory Regime by the UK's HM Treasury marks a significant milestone in the country's ongoing efforts to combat financial crimes effectively. This proactive approach comes as a response to critical findings highlighted in the UK's 2015 National Risk Assessment (NRA), which shed light on the fundamental weaknesses in the non-financial sector's AML/CTF supervision.
The initial establishment of the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) in 2017 was a step in the right direction; however, subsequent evaluations revealed the need for further progress. The recent consultation paper aims to address these identified deficiencies, emphasizing the importance of robust and consistent supervision in the AML/CTF regime.
Building upon previous assessments, the 2018 Financial Action Task Force's (FATF) Mutual Evaluation Report (MER) expanded the scope of AML/CTF supervision to include most AML/CTF supervisors, excluding the Gambling Commission (GC). Despite this extension, the MER also highlighted the existing gaps in supervision within the private accounting and legal sectors, urging a deeper understanding of ML/TF risks. It became evident that a more comprehensive and inclusive approach was necessary to tackle these remaining challenges effectively.
Subsequent reviews in 2022 revealed that progress in strengthening the supervisory sector fell short of expectations. While some improvements were observed, the underlying weaknesses persisted, particularly in the accounting and legal sectors. The report emphasized the need for enhanced supervision standards to address the sector-specific risks adequately. Inconsistencies, regulatory arbitrage, and inadequate information sharing were identified as contributing factors to these lingering weaknesses.
In response to these findings, the UK government has introduced the Economic Crime Plan (2023-2026), which includes a dedicated strategy to comprehensively reform the AML/CFT supervisory system. The plan outlines a series of actions, including the strengthening of oversight for OPBAS and HM Treasury and the enhancement of the AML/CFT supervisory regime. The ultimate goal is to create a more robust and effective system that aligns with international best practices and mitigates the risks associated with money laundering and terrorist financing.
The consultation paper released by HM Treasury is a crucial step in the reform process. It invites industry experts, regulatory bodies, and stakeholders to provide valuable insights and feedback. This inclusive approach ensures that the resulting reform package will be well-informed, comprehensive, and responsive to the challenges faced in the AML/CTF supervisory landscape.
In conclusion, the UK government's proactive approach to addressing the weaknesses in the AML/CTF supervisory regime demonstrates its commitment to combatting financial crimes effectively. By leveraging the insights gained from past assessments, the government aims to develop a robust and comprehensive framework that fosters consistent supervision, promotes information sharing, and effectively combats money laundering and terrorist financing in the non-financial sector.
UK Government Seeks Feedback
The UK government has initiated a consultation as part of its Economic Crime Plan's sixth Action, focusing on the reform of the country's AML/CTF regulatory and supervisory regime. The consultation document, titled "Review of the UK's AML/CFT Regulatory and Supervisory Regime," presents stakeholders with four distinct reform models. The purpose is to collect feedback and insights through a survey, allowing interested parties to contribute to the development of a more effective supervisory framework.
The four proposed reform models are as follows:
1. OPBAS+
This model retains the existing supervisory structure but suggests vital modifications to empower the supervisory body with enhanced capabilities. The goal is to enable more efficient sector supervision and address existing limitations.
2. PBS Consolidation
This model tackles the issue of excessive Private Body Supervisors (PBSs) and the resulting inconsistencies. It proposes consolidating private body supervision into either two or six PBSs. The two-PBS option assigns one supervisor per sector (legal and accountancy), while the six-PBS option involves two supervisors per sector across the UK's three jurisdictions.
3. Single Professional Services Supervisor (SPSS)
Under this model, private supervision by PBSs would likely be replaced by a single public regulatory body responsible for overseeing the legal and accountancy sectors. The consolidation aims to streamline supervision and enhance coordination.
4. Single Anti-money Laundering Supervisor (SAS)
This model suggests entrusting AML/CTF supervision to a single public entity while removing the AML/CTF supervisory roles of the Financial Conduct Authority (FCA) and the Gambling Commission (GC). PBSs would no longer be responsible for AML/CTF compliance supervision but would retain their supervisory powers for other matters.
The government seeks comprehensive feedback on these reform models to inform future decision-making and shape the future landscape of AML/CTF supervision in the UK. Through active participation in the consultation, stakeholders can contribute to building a more robust and effective AML/CTF supervisory regime.
