In January this year, one bank was fined £163 million for failing to maintain an adequate anti-money laundering control framework. Last year, another was fined £3.3 million for systemic anti-money laundering failures and the money laundering reporting officer was fined £18k and banned from holding a similar position in the future. The bank was also consequently banned from accepting deposits from new customers for a period of 24 weeks.
These fines represent powers that exist to exercise disciplinary measures against financial institutions that breach money laundering laws. Countering terrorist financing and money laundering has always been important to the UK and Europe and they are now becoming even more so.
Despite the decision taken by the UK to leave the European Union following the referendum in June, the ‘Plan for Britain’, outlined on 17 January 2017 by Prime Minister Teresa May, made clear a need for co-operation in the fight against crime and terrorism. This included increased co-operation between the UK and EU members.
The Financial Conduct Authority (FCA) has also separately confirmed that despite Brexit, financial service institutions must comply with any legislation that is due for implementation up to the final exit date which is expected in 2019. As a result, any activities previously underway or scheduled remain so.
Several collaborative efforts to ensure that all agencies both private and public sector work together to fight money laundering and the financing of terrorism are now in motion both in the UK and at EU level. It is evident that individual agencies working on their own to fight terrorism and money laundering would benefit from a more “joined up” approach.
Key European developments
The European Fourth Money Laundering Directive (4MLD) which became law on 26 June 2015 and the new Fund Transfer Regulation (EU) 2015/847 are due for implementation in the UK by 26 June 2017. The Money Laundering Regulations 2007 are to be replaced by the Money Laundering and Transfer of Funds (Information on the Payer) Regulations 2017 and HM Treasury are currently working on this revised legislation with results expected during Q1 2017. Following publication, both the Joint Money Laundering Steering Group and the FCA will publish updated industry guidance.
On 5 July 2016, the European Commission published a proposal of additional measures to 4MLD which were subsequently designated as the Fifth Money Laundering Directive (5MLD) in response to recent terrorist events in Europe.
There have been various recent UK initiatives aimed at fighting terrorism and financial crime which directly affect payments.
A new strategy for payments
Specifically on the payments front, the UK’s Payments Systems Regulator (PSR) Strategy Forum delivered a plan in the UK in November last year on the future of payments, which included efforts to combat financial crime. Suggested proposals for key priorities include:
- improving customer awareness and education with regard to financial crime
- producing guidelines for identity verification, authentication and risk assessment
- improving intelligence sharing and data analytics within financial crime
- enhancing sanctions data quality
Other UK initiatives
In September 2016, the National Crime Agency (NCA) released a strategic assessment of serious and organised crime, which demonstrated that money laundering, and in particular high end money laundering, formed one of the top five threats to the UK. This reflects the tone set by the previous Prime Minister at the anti-corruption summit in May 2016, and with the UK subject to a Financial Action Task Force (FATF) Mutual Evaluation in 2018, the pace of development within the anti-money laundering arena seems unlikely to decline.
Changes to the Immigration Act 2016 now extend the scope of current immigration checks to include back book review of all payment accounts held from October 2017 onwards. The act received Royal Assent on 12 May 2016.
A much wider package of measures aimed at strengthening the approach to money laundering and countering terrorism has also been introduced. This includes the Criminal Finances Bill which was introduced on 13 October 2016 following the publication in April 2016 of an action plan to fight money laundering and the countering of terrorist financing. Also positive are efforts to improve the level of criminal assets confiscated by the state and, where possible, returned to victims. Other important planned actions include:
- reforming the Suspicious Activity Report (SARs) regime, allowing law enforcement agencies more time to gather evidence
- investment in systems and processes to complement the legislation
- granting additional powers to law enforcement to compel the provision of information (This is likely to result in an increase in information request and seizure orders)
Joint Fraud Taskforce
Collaborative efforts are also now in place in the fight against fraud, bringing together the government, law enforcement and a number of financial institutions through a new Joint Fraud Taskforce (JFT) launched in February 2016. This was further endorsed by the Home Secretary in a speech at the FCA Financial Crime Conference in November 2016, highlighting successes seen in the first six months. These included:
- a nationwide campaign targeting prolific fraudsters that led to several arrests
- the launch of the ‘Banking Protocol’, an initiative that can lead to the rapid deployment of law enforcement and Trading Standards in certain scam situations. This initiative was trialled in London and is currently being deployed by other Police Forces
Understanding financial sanctions
As financial sanctions are sometimes misunderstood, the UK’s HM Treasury recently created the Office of Financial Sanctions Implementation (OFSI), as a service to the private sector to help ensure that financial sanctions are properly understood, implemented and enforced. Significant efforts are now in place to raise awareness and provide clear guidance to promote compliance with financial sanctions.
A priority for the FCA
Financial crime and anti-money laundering were also one of seven priority areas in the FCA Business Plan for 2016/17 published in April last year. Some planned activity includes exploring how new technology can make AML processes more efficient to reduce financial exclusion and make application processes such as identification and verification less onerous for customers. This particular subject has received high profile endorsement from both the Home Secretary and the FCA. Financial institutions are also now required to complete a new Financial Crime Annual Data Return to enable more focused supervision.
Neil Lover is the Head of Payments, Cards, Financial Crime and Money Laundering Reporting Officer at the Coventry Building Society.