Brexit or not, AML regulation is here to stay
As a lot of UK business in the wake of Brexit are looking to shift clients or office space to their European neighbours, upholding intercontinental regulatory standards will become more and more important. In order to maintain amiable trade relations with the EU in a post-Brexit world, British banks will need to maintain EU Anti-Money Laundering (AML) standards.
This mirrors an international trend, as across the globe financial services are getting serious about AML and Counter-Terrorism Financing (CTF). Particularly, AML regulation means not just reporting any illicit payment activity, but also actively trying to prevent it to the greatest degree possible. The exploitation of digitised financial systems, combined with tightening regulation from international watchdogs, is increasing demand for the UK private sector to work with public regulators to tackle and prevent financial crime.
AML and CTF have occupied an increasing amount of real estate in the fin-crime world over the last 5 years. Moving money across borders for nefarious means has become quicker, with more channels to send the money and more ways to obscure the payment trails. Now, with blockchain technology etching into the mainstream, criminals have additional ways to secure anonymity in their money movements.
Brexit has created a high degree of uncertainty about how British institutions will interact with the EU, and this goes for AML regulation too. In the face of such uncertainty, if UK banks adhere to EU regulatory standards, they will be much better prepared for whatever realities Brexit delivers.
British regulators over the last 2 years have been working hard to establish more robust standards and improve cooperation with law enforcement. The Office of Professional Body Anti-Money Laundering Supervision (OPBAS) is the unit in the FCA appointed to oversee that AML regulation is upheld in the UK. Anointed with the power to investigate incidents and discipline offenders, OPBAS is the new watchdog in town making sure UK financial services fulfil the 2017 Money Laundering Regulations.
The new regulations encompass a firm-wide risk assessment, bringing everything from a company’s customers, employees, regional operations, products and services, delivery channels, transactions and reporting under scrutiny. British firms are now responsible for identifying, assessing and reporting any money laundering and terrorist financing risks. Appropriate due diligence is essential to screening any person or persons interacting with the company. Banks need to prove to regulators what they are doing to mitigate against money laundering risks, including policies, controls, procedures and independent audits.
Meeting the EU Standards
- There will be a public registry of company owners in every nation
- The nation will provide the names of trust beneficiary owners to law enforcement and, when required, investigative journalists and non-government organizations
- Company and trust owners will be registered in the European commission’s multi-national database
- Financial intelligence units will be able to automatically access bank account holders’ names
However, the question is largely unanswered as to whether the UK is required to implement EU mandates if it leaves the union. Should Brexit succeed, not abiding by stringent AML standards could severely impede Britain’s ability to maintain dominance in the global financial system. For this reason, it is likely that Britain will continue to implement EU AML policy to maintain its unimpeded access to the European financial markets.
Global Focus on AML
Across Europe and the US, international bodies are no longer willing to turn a blind eye to lax AML standards. The recent Latvian scandals, which involved their banks embroiled in money laundering schemes and being an access point for dirty money to enter Europe, saw threats that Latvia could be subject to international penalties. Latvia is in danger of being added to the Financial Action Task Force list, an international register of countries who do not comply with basic AML thresholds. If reprimanded, Latvian citizens are in danger of having their credit cards rejected overseas and local businesses blocked from dealing with foreign partners.
The Latvian case largely serves as a reminder that Europe is getting tougher on policing financial crime. As such, one of the ways to preserve collaboration with the continent and uphold Britain’s reputation as a stalwart of the European financial system is to continue its commitment to EU standards.
Beyond the Financial Benefits
Although the threat of Brexit can help renew the focus on fighting financial crime, it is worth remembering the larger picture of why this regulation is important. Having robust AML regulation and an effective financial crime unit is more than just good policy. Annually roughly US$2.4 trillion is laundered through global banking systems and used by criminals to fund terrorism, drug trafficking and other despicable activities.
Working alongside domestic and international regulators, leveraging intelligent technology, and creating a compliance-based culture in financial institutions will provide significant social benefits. Britain should be proud to be part of a global objective to create an AML standard that stymies criminal activity and cultivates a safer international financial system.