Reviewing the UK’s AML/CTF regulatory and supervisory regime

Global financial systems are under significant threat from money laundering and terrorist financing, with the United Nations estimating that the amount of money laundered worldwide annually is between 2% to 5% of global GDP, equating between USD$800 million and USD$2 trillion. However, given the illicit nature of money laundering it is virtually impossible to estimate the actual value with any degree of certainty.

Money laundering and terrorism financing activities can have serious adverse effects across borders, for example, countries with weak or ineffective AML/CTF controls are more likely to attract financiers of terrorism or money launderers who can more easily exploit financial institutions operating in loosely regulated countries.

The United Kingdom is one country on the front foot, implementing a robust AML/CTF supervisory regime to combat these illicit activities. This article reviews how effective the UK’s AML/CTF regime is and what other jurisdictions can learn by following a similar approach.

Oversight by The Financial Conduct Authority (FCA)

The UK’s AML/CTF regime benefits from the proactive oversight of the Financial Conduct Authority (FCA). The FCA is pivotal in ensuring compliance with AML/CTF regulations. The regulatory body is responsible for conducting national risk assessments, targeted inspections of regulated organisations, industry outreach and enforcement for non-compliance.

In May 2020, the FCA and Her Majesty’s Revenue & Customs (HMRC) entered into a Collaboration Agreement to provide Single Point of Contact services, where the FCA is the subscribing authority and HMRC is the supplying authority. Since then, hundreds of businesses have been fined for breaching AML/CTF laws named by HMRC, totalling £3.2 million.

In addition to facing fines, HMRC publishes the details of all businesses or individuals that breach AML regulations on their website.

Earlier this year, the FCA fined Santander UK £107.7 million for repeated anti-money laundering failure, highlighting that it’s not just current breaches that are in focus. They identified that between December 2012 and October 2017, Santander failed to oversee and manage its AML systems properly.

Collaboration With The National Crime Agency (NCA)

The UK’s National Crime Agency (NCA) is the central agency responsible for receiving, analysing, and disseminating financial intelligence related to money laundering and terrorist financing. Increased collaboration between regulatory bodies and law enforcement agencies in the UK is essential for AML/CTF effectiveness.

The NCA works closely with domestic and international agencies to identify and disrupt illicit financial activities. One notable example is the support provided by NCA to the US Department of Justice. Last year, the two organisations collaborated on a complex investigation that successfully prosecuted individuals involved in a multi-billion dollar international money laundering scheme.

This collaboration demonstrates the UK’s commitment to international cooperation. And how partnerships and proactive action can positively contribute to global efforts to combat financial crime.

Enhanced Due Diligence Standards

The UK’s AML/CTF regime emphasises implementing enhanced due diligence (EDD) standards to help mitigate the risks of money laundering and terrorist financing.

All financial institutions must conduct comprehensive customer due diligence, such as identification and verification of customers. They also need to monitor ongoing transactions and report any suspicious activities.

There is also an additional emphasis on Politically Exposed Persons (PEPs) and individuals from high-risk jurisdictions, helping to address potential risks. For example, UK banks must implement robust PEP screening processes to comply with the UK AML/CTF regime.

Updating Money Laundering Regulations

In 2017, the UK government updated its AML/CTF regulations to align with the European Union’s Fourth Money Laundering Directive. The directive aims to combat money laundering and the financing of terrorism by preventing the misuse of financial markets. The measures have been vital in preventing the misuse of corporate structures for money laundering purposes and promoting transparency in the UK’s financial system.

In 2022, there was a review of this regime which highlighted that while there had been continued improvement (including expanded scope and increased transparency), there were some weaknesses regarding supervision that may require structural reform.

As a result, HM Treasury is currently seeking consultation on reform of the system, looking at four potential models for reform. The reform aligns with the Economic Crime Plan 2023-26, which identifies what both public and private sectors should do to transform the response to economic crime in the UK. The consultation period is open until September this year.

Public-Private Cooperation

Public-private cooperation is the foundation of the UK’s AML/CTF regime. The Joint Money Laundering Intelligence Taskforce (JMLIT) is a partnership between law enforcement agencies and individual financial institutions. It focuses on exchanging and analysing information related to economic threats, including money laundering. It comprises over 40 financial institutions, the FCA and numerous law-enforcement agencies.

Since it began in 2015, it’s generated positive results and sets an international example of best practice. It’s supported and developed almost 1,000 law enforcement investigations since its inception, directly contributing to over 280 arrests. Information sharing through the partnership enables timely detection to prevent financial crime. It’s a model that has proven successful in fostering trust, promoting cooperation and facilitating information sharing among key stakeholders.

Setting an Example

The UK’s AML/CTF regulatory and supervisory regime is a robust and proactive approach that other jurisdictions could consider when reviewing and updating their own regimes. The key takeouts include:

Strong oversight by regulatory bodies
Regular collaboration between regulatory bodies and law enforcement agencies
Updating regulations frequently and as needed
Implementing enhanced due diligence standards
An emphasis on public and private cooperation

By continuously evolving and adapting to emerging risks, the UK’s AML/CTF regime sets a commendable example for others in the global fight against financial crime.

How RegTech Can Help

In an interconnected financial world, money and finance terrorism methods are becoming more sophisticated. Increasing the need for enhanced regulatory technology to detect, monitor and prevent financial crime.

RegTech helps to streamline and automate controls, allowing businesses to maintain compliance more effectively and protect their business and customers.

About Arctic Intelligence

Arctic Intelligence is widely recognised as an expert in financial crime regulatory technology (RegTech). The team has developed two multi-award-winning financial crime risk assessment platforms to help clients identify vulnerabilities, strengthen controls and adapt to emerging threats.

Arctic has helped hundreds of businesses of varying sizes across many industry sectors and countries transition from spreadsheets to digitization and automation of financial crime risk assessments.

Our team of financial crime and technology experts have developed two multi-award-winning financial crime risk assessment platforms:

AML Accelerate Platform – designed for small and medium sized companies in over 30 industry sectors, in more than 30 countries. Guides you to conduct enterprise-wide money laundering and terrorism financing risk assessments, document AML/CTF Programs and track and monitor issues, breaches and incidents real-time.

Risk Assessment Platform – designed for larger companies to conduct risk assessments for financial crime and other risk domains. The Risk Assessment Platform is a highly-configurable platform that can be tailored to your organisation’s risk assessment methodology, risk and control libraries relevant to their business and execute these across multiple countries, operating groups or business units, producing real-time aggregated dashboards and reports.

Get in touch with our team for a demo today.

Request a demo

Twitter