Anti-Money Laundering - it hasn't gone away!

Published 5 February 2018, Kevin O’Leary, VP of Product Management at Corlytics

NEW WATCHDOGS IN TOWN

In the UK, the Financial Conduct Authority (FCA) estimated that £90bn of dirty money washes through the UK each year (The Financial Times, 2018).

Last week it was announced that a new watchdog was introduced to strengthen the UK’s defences against money laundering and terrorist financing. This is the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) and it is based within the FCA. It will work with the UK’s Anti-Money Laundering (AML) supervisors to help improve standards, and law enforcement bodies to strengthen cooperation.

OPBAS will directly oversee the 22 accountancy and legal professional body AML supervisors in the UK. It will ensure these 22 organisations meet the high standards set out in the Money Laundering Regulations 2017. It also has powers to investigate and penalise those that do not.

2017 SAW $1.8BN IN FINES RELATING TO AML

At Corlytics, we have seen that over $1.8bn in fines and penalties have been issued for breaches of AML regulations in the last 12 months. Large fines handed out to well-known names like Deutsche Bank and Western Union tend to grab the headlines. But, there is an interesting sub-plot in our data: regulators that do not have a track record for issuing AML fines have become much more active – the French Prudential Supervision and Resolution Authority and the Central Bank of Ireland for example. Both regulators have acted against their large domestic banks and have also begun to fine the local affiliates of foreign banks for AML related failings.

AML CONTROL FAILINGS

Ineffective compliance programmes and weak governance drive the very large fines. But in the larger volume of smaller but still significant fines, we see a common pattern of control failings. Including: ineffectivecompliance monitoring & oversight; inadequate staffing levels in compliance operations; inadequate training & supervision; and issues with Suspicious Activity Reports (SAR) filed within the national Financial Intelligence Unit. SAR-filing is a critical element in the fight against money-laundering.

Typical failings we see highlighted in our data include having insufficient staff to manage the SAR-filing backlog; staff with inadequate skills to prepare reports accurately; and lack of proper supervision. Regulators want to see that as an industry we have learnt from past mistakes. They no longer want to find what the UK Solicitors Regulation Authority discovered when it reviewed 375 law firms back in 2014 – an example where the money-laundering officer was an 18-year-old part-time worker!

WHAT’S IN STORE FOR 2018?

2018 will see the fourth AML directive begin to bite in the European Union. More than six months after the deadline, many EU countries have yet to pass the enabling legislation. Some of the delay is due to the directive already being subjective to a revision. Updates include further increasing transparency around beneficial ownership. This is a common global theme. 2018 also sees the introduction of similar beneficial ownership rules in the US.

Individual regulators who had historically been less vocal on AML matters are becoming more active. The Dutch Central Bank has stated an intention to focus on financial crime risks as part of their latest business plan. In December 2017, the Dutch Markets Regulator specifically noted that only four Suspicious Activity Reports  were filed across the entire investment management sector in the Netherlands. A number which it deems remarkably low – a definite indication of future regulatory intent!

As financial crime regulations continue to evolve, we are here to help provide the intelligence to risk, compliance and legal teams – determining the business impact of these regulatory changes.

 

Kevin O’Leary, VP of Product Management at Corlytics