HM Treasury releases AML/CTF Reform Consultation Paper

On June 30, 2023, His Majesty’s Treasury (HM Treasury) released a consultation paper on the Reform of the Anti-Money Laundering and CounterTerrorism Financing Supervisory Regime. The consultation is part of a reform plan under the Economic Crime Plan (2023-2026). The paper responds to multiple reviews since 2015 which have highlighted critical anti-money laundering and counter-terrorism financing (AML/CTF) supervisory weaknesses in the United Kingdom’s non-financial sector. 

Despite the 2017 implementation of a non-financial sector AML/CTF supervisory office, Professional Body Anti-Money Laundering Supervision (OPBAS), HM Treasury has not deemed progress in this key anti-financial crime area satisfactory. This consultation paper discusses four alternative reform models before calling for in-depth feedback in a follow-up survey.

Background

The UK’s first money laundering/terrorist financing (ML/TF) national risk assessment (NRA) in 2015 revealed key weaknesses in the AML/CTF regime’s non-financial sector supervision. At the time, the sector was supervised by private Professional Body Supervisors (PBSs). According to the consultation paper, the government created OPBAS to “ensure robust, consistent supervision across PBSs, as well as good information sharing between supervisors and with law enforcement.”

In 2018, the Financial Action Task Force’s (FATF) Mutual Evaluation Report (MER) for the UK echoed the 2015 NRA’s supervisory concerns, extending to “all AML/CTF supervisors, except for the GC” (Gambling Commission). That said, the MER called specific attention to gaps in supervision and the understanding of ML/TF risk in the UK’s 22 private accountancy and legal sector supervisory bodies. Still, it was generally hoped that the recent creation of OPBAS would result in improvements over time.

In 2022, a review of the supervisory sector revealed less progress than hoped for. While the supervision of professional bodies had improved, key weaknesses remained. In particular, the report noted that supervisory standards for the accountancy and legal sectors did not reflect the sector’s high risk. These weaknesses were linked to too many supervisors, leading to the risk of “inconsistency, regulatory arbitrage, and poor information sharing.”

In response to these remaining weaknesses, the Economic Crime Plan (2023-2026) includes a specific plan to address this deficiency through a more in-depth reform of the UK’s AML/CFT supervisory system. The plan included three specific actions aimed at this goal – actions four, five, and six. They entail:

• Strengthening existing oversight for OPBAS and HMT.
• Strengthening the AML/CFT regime’s supervision.
• Delivering a reform package for the UK’s AML/CFT supervisory regime following a consultation.

Consultation

The consultation is the first step in the current Economic Crime Plan’s sixth Action. It considers the evidence collected in the Review of the UK’s AML/CFT Regulatory and Supervisory Regime, proposing four possible reform models and collecting feedback through a survey. The four models are:

• OPBAS+ – This would retain the current supervisory structure but make vital modifications to its powers to enable more effective sector supervision.
• PBS Consolidation – This would address the issue of too many PBSs and the resulting inconsistencies created by consolidating private body supervision into two or six PBSs. Under the two-PBS option, there would be one for each sector (legal and accountancy), while under the six-PBS option, there would be two per sector for each of the UK’s three jurisdictions.
• Single Professional Services Supervisor (SPSS) – Under this model, private supervision (PBSs) would likely be eliminated in favor of a single public regulatory body responsible for the legal and accountancy sectors.
• Single Anti-money Laundering Supervisor (SAS) – This model would involve committing AML/CFT supervision to a single public entity and also removing the AML/CFT supervisory roles of the FCA and GC. PBSs would no longer supervise AML/CFT compliance but would retain supervisory powers for other matters.

The consultation is also exploring the need for dedicated sanctions supervision and how the proposed models might intersect.

Key takeaways

Firms should watch for updates across the UK’s AML/CTF regime, especially in the supervisory sector. Those in the non-financial sector currently supervised under OPBAS should pay particular attention, as significant regulatory changes will likely be coming in 2023 and beyond. It would be worthwhile for firms to also consider updating their risk management technology and risk assessments to ensure they are prepared for upcoming changes. According to the HM Treasury:

As part of its objective to drive effectiveness, the review has also considered the potential levers for government to support businesses in increasing their own effectiveness, for example through the appropriate use of new technology, ensuring businesses have up-to-date understandings of the risks they face, and improving the AML guidance regime. Focus on making incremental improvements within existing structures, in collaboration with partners across the regime, is deemed to be the most appropriate approach in this area.

Source: HM Treasury