17 Jul 2017
This article was written by Natasha Reurts for the Bright Line Law Portal, and is republished here with BLL’s permission.
In March of this year, the UK government announced the introduction of a new anti-money laundering watchdog, the Office for Professional Body Anti-Money Laundering Supervision (“OPBAS”). Currently, it is expected that OPBAS will be operational from early 2018 and sit within the Financial Conduct Authority (“FCA”) governance structure. OPBAS will be funded through the introduction of a new fee on professional body supervisors.
Overview of OPBAS
The government’s April 2016 ‘Action Plan for Anti-Money Laundering and Terrorist Financing’ signalled a commitment to improve and review money laundering and counter terrorist financing supervision. Central to the report was a perceived lack of consistency and as a result, confusion and conflicting messages, in the area of AML supervision. A key factor was said to be the sheer number of professional / industry-based AML supervisory bodies.
Now billed as the ‘supervisor of the supervisors’, OPBAS is set to be charged with monitoring the activities of professional body supervisors, improving overall money laundering standards and working with law enforcement to ensure obligations and performance roles are met. Moreover, it is envisaged that OPBAS will work alongside the reformed Money Laundering Advisory Committee and together approve and publish a comprehensive set of money laundering guidance for individual sectors. This type of partnership can be said to be indicative of the broader OPBAS goal – to achieve greater cohesiveness and partnership between supervisory bodies and law enforcement authorities. Certainly, this is to be welcomed owing to the extensive and, at times, differing guidance published by bodies such as the Joint Money Laundering Steering Group (“JMLSG”), FCA, HMRC and industry-specific professional bodies. That said, the focus of OPBAS is set to be on the legal and accountancy sectors which currently have 22 out of the 25 professional supervisory bodies. Alongside these functions, OPBAS will be charged with ensuring compliance with international standards and implementing uniform and detailed levels of supervision across sectors. Should supervisors breach new money laundering regulations, OPBAS will have the power to impose financial penalties for such regulatory breaches.
These stated objectives should, in theory, achieve a level of consistency and clarity across industry participants and sectors. Certainly, the enactment of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), introducing new aspects of the money laundering regime, creates a need for detailed and uniform guidance (e.g. the performance of risk assessment, PEP treatment and group-level implementation). Uniformity across the board will also, hopefully, reduce avenues for exploitation of industry participants and prevent inadvertent failings.
What can we expect?
Further details on OPBAS’ remit and the precise nature of its interaction with the professional sectors are still to come. According to the government, the timeline is as follows:
“The obligations on supervisors will be clarified, and key guidance updated and published, by June 2017, when the new regulations are implemented in line with the transposition of the Fourth Money Laundering Directive. The government will consult on the draft regulations that will underpin the Office [OPBAS] over the summer, then they will be finalised and laid before Parliament in the autumn. The government expects the Office [OPBAS] to be fully operational by the start of 2018.”
Assuming publication of the draft regulations is imminent and the timeline remains unchanged, OPBAS will by the start of 2018 play a central role in tackling financial crime by bolstering standards of AML supervision and ensuring that loopholes and inconsistencies across industry guidance documents are no long open to exploitation by those seeking to move illicit funds. In line with this and the broader objective to eliminate inconsistencies, it is anticipated that OPBAS will start its work by undertaking a process of review and heavily scrutinising professional AML supervisory bodies. On one view, OPBAS could undertake a global or general process of review as regards what a particular industry (e.g. accounting) is doing to combat AML in order to get a sense of whether the guidance is sufficiently robust. On another view, to effectively evaluate the robustness or otherwise of a particular body’s guidance, there is a need to for OPBAS to perform a granular and specific review of each industry subset. For example, the AML risk is likely to subtly different in the managerial accounting sector (which is predictive) as opposed to the tax accounting sector (which is historical). The review process will, naturally, affect firms within those sectors but is also likely to make OPBAS more effective. In practice, however, the shorter the length of review the greater the certainty.
If uniform guidance, overseen by and in collaboration with OPBAS, is achieved this will practically enable those in the regulated sector to have greater confidence in their firm-level money laundering and counter-terrorist financing policies, procedures and practices and, by extension, their day to day risk management. After all, if the guidance has been vetted and scrutinized by the supervisor’s supervisor and a firm has consequently relied on that guidance to inform their own policies and procedures, this surely will assist in fending off a subsequent allegation for non-compliance with MLR 2017.
Fundamentally, what OPBAS will mean is more oversight of the supervisors. The government’s ‘Call for Information on the UK’s AML Supervisory Regime’ in tandem with the ‘Cutting Red Tape Review of the UK’s AML and Counter Financing of Terrorism’ initiative found that respondents sought clearer government standards and greater oversight to help supervisory body’s compliance standards.
Potential Challenges and Tensions
Although OPBAS is designed to reduce the amount of red-tape and confusion surrounding the practical implications of money laundering regulations, policies and procedures, there is the risk that the creation of yet another supervisory body will only add to the regulatory burden facing firms. Hopefully, as the precise scope, nature and role of OPBAS becomes clearer down the track, this risk will diminish. Regardless of this, it could be said that, although it is far too early to predict OPBAS’ success and overall impact, it is perhaps counterintuitive that simplifying and creating consistency across the AML framework hinges on the creation of another bigger supervisor with new powers.
OPBAS’ power to penalise professional body AML supervisors for breaches of MLR 2017 will be an interesting space to watch. No doubt, commentators will speculate whether the ambit of the new powers should be widened to have direct enforcement powers as against firms themselves.
On a macro level, it is further worth questioning – and indeed, it may currently be on the minds of supervisory bodies – whether we are witnessing an erosion of self-regulation and a move toward a single AML supervisor. This may well cause tensions between the new body and the existing professional supervisors which can impact firms. The private sector is protective of self-regulation and, arguably, best placed to deliver industry-specific guidance owing to their knowledge surplus in the areas in which they operate. Although any tension between industry and supervisor watchdog is entirely speculative, a battle between the two would surely result in delay, confusion and a step back in efforts to make the UK a more hostile environment for illicit finance.
Natasha Reurts is an associate at Bright Line Law, and is involved in policy work at The White Collar Crime Centre. She wrote this piece for the Bright Line Law Portal; it is republished here with their permission.
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