FCA: AML a key priority
The body tasked with overseeing legal regulators’ anti-money laundering (AML) work said yesterday it was not seeing “the consistent, effective improvement we need”.
The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) said there needed to be a “combined commitment… to effectively fulfil their ongoing AML supervisory role to protect the UK against the threat of money laundering”.
It told the regulators of both lawyers and accountants that they needed to strengthen their AML supervision.
They should be “demonstrably reducing the risk of illicit funds in the UK by taking increasingly proactive and effective interventions among their populations” – and to achieve this, many will have to do “much more to improve their current approach”.
OPBAS, part of the Financial Conduct Authority (FCA), oversees the AML activities of the nine legal and 13 accountancy AML supervisors.
In the law, these are the law societies and bar councils of the three UK jurisdictions (including also the Solicitors Regulation Authority and Bar Standards Board), the Chartered Institute of Legal Executives/CILEx Regulation, the Council for Licensed Conveyancers, and the Faculty Office of the Archbishop of Canterbury, which supervises notaries.
OPBAS’s role is to ensure robust, consistent supervision across these so-called professional body supervisors (PBSs), as well as good information sharing.
Its fifth annual report, which as in previous years did not name which regulators it was referring to, said most PBSs could demonstrate compliance with their obligations under the MLRs.
But there remained “a lack of full and consistent effectiveness” across the nine PBSs it assessed during the year – none fully met OPBAS’s expectations.
Indeed, two were issued with “supervisory directions” because of their shortcomings.
The assessments showed no material improvement in PBSs’ effectiveness in the core areas of supervision, risk-based approach, enforcement, and information and intelligence sharing.
“Not all PBSs are prioritising and resourcing their AML supervisory function appropriately,” OPBAS found.
Overall, the accountancy sector PBSs assessed showed their supervision was better than the legal sector’s, but gaps remained “across the board”.
The legal sector did not have clear selection criteria for inspections or formalised supervisory cycles; one PBS had not classified any members of its supervised population as high risk, despite some providing trust and corporate services, which are designated as high risk.
“We also identified a PBS in the legal sector that considered the inherent risk of money laundering to be low in its supervised population and so did not provide regular AML training to its staff in specialist AML roles.”
The number of suspicious activity reports submitted to the National Crime Agency fell in the legal sector last year, while OPBAS said PBSs were not using the full range of their enforcement powers “in an appropriate and dissuasive way”.
OPBAS conducted a ‘deep dive’ that found “weaknesses across key areas” in the three PBSs responsible for barristers and advocates.
“In our view, the PBSs in this sub-sector did not appear to sufficiently prioritise AML supervision on a par with other regulatory obligations, with relatively low AML resource (staffing) levels and low expenditure dedicated to AML.
“There was a consistent view among the PBSs in this subsector that the risk of money laundering and terrorist financing to barristers and advocates is low. We increasingly agree this low relative risk assessment is reasonable, but that some level of risk remains.”
The report said the PBSs did not conduct their own objective analysis of the risks, while those they regulated were not always clear about which legal services fell within the scope of the AML rules.
There was also a deep dive into conveyancing, given the high money laundering risk. OPBAS found a consensus on the main risk factors, “which included verifying unexplained source of funds and wealth (pooled deposits, crowd funding), identifying third parties, inappropriate use of client accounts, and the focus on high-end property which could be to the detriment of risks at the lower end of the market”.
Andrea Bowe, who is director, specialists at the FCA, said: “The FCA is committed to playing a leading role in reducing and preventing financial crime. Through OPBAS, we have intervened to tackle failings where we have found them. However, we are still not seeing the consistent, effective improvement we need.
“Tackling financial crime is a key priority for the FCA. OPBAS will focus on improving the consistency and effectiveness of PBSs as part of this work.”
Dr Susan Hawley, executive director of Spotlight on Corruption, commented: “The report shows clearly that leaving the policing of money laundering rules to professional bodies for lawyers and accountants isn’t working and that things are getting worse.
“The Treasury urgently needs to take an ambitious approach and look at fundamental reform of AML supervision because the status quo is no longer tenable. Failing supervisors should for starters have their policing role removed from them as early as possible.”
Under the last government, HM Treasury was consulting on the future of AML supervision; one of the options is to consolidate supervision in the legal sector in a single regulator. The SRA has put itself forward for the role.
I fear one profession regulating all professionals as much as each PB having its own regulation. What is missing is analysis of continuing and repeating disputes affecting professions and their differing views to cease disputes being sorted out by insurers. There really is professional collusion too intra profession and within groups of different professionals in the property market which means collusion is not easily detectable. Fraud is not just terrorist activity either. Policing of the professional infrastructure is woeful. We can and should do better