AML: Standards rising
Some legal and accountancy regulators are not undertaking “sufficiently dissuasive disciplinary measures” over non-compliance with anti-money laundering (AML) rules, their oversight body has warned.
The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) found that some regulators were “overly relying on ‘assisted compliance’ to correct failures through a disproportionate focus on working with firms”.
This risked undermining “the delivery of proportionate, effective and dissuasive disciplinary measures”.
OPBAS, which sits in the Financial Conduct Authority (FCA), oversees the AML activities of the nine legal and 13 accountancy regulators in the UK. Its role is to ensure robust, consistent supervision across these so-called professional body supervisors (PBSs), as well as good information sharing.
It will be abolished when the FCA takes over as the supervisor [1] of all lawyers and accountants’ AML activities.
In his introduction to its annual review of the PBSs [2], Mark Francis, director of the FCA’s specialist directorate, said the change “reflects the importance of strong, consistent and systemwide supervision”.
For now, however, “standards at PBSs have improved, providing a strong foundation on which to build a new regulatory model”.
Indeed, OPBAS said the PBSs were more effective than at any time since it began its work in 2018.
As ever, the report – covering 2023-24 – does not identify which PBSs it is talking about, except that in December it censured the Institute of Certified Bookkeepers for “serious deficiencies” in its AML supervision. This was the first time OPBAS has used that power.
The report said OPBAS was looking “closely” at the accountancy sector because its PBSs generally received lower scores that the legal sector’s in their enforcement effectiveness – the average fine handed out to accountancy firms was around a sixth of that law firms received (£1,892 v £12,073).
Law firms covered by the AML regime were twice as likely to receive an onsite inspection as accountants (6% v 3%), although around 6% of both were subject to desk-based reviews.
This was in the context of accountancy PBSs ranking far more of their firms as higher risk. While 4.5% of law firms were deemed high risk for AML purposes and 11% medium risk, for accountancy firms the figures were 8.4% and 25% respectively.
The report said there remained common breaches across both sectors of inadequately documented policies and procedures, customer due diligence, client risk assessment or records and no or inadequate firm-wide risk assessment.
These continued failures “call into question the consistency and effectiveness of PBS supervision”, with OPBAS’s work showing that some PBSs “still take an overly member-centric approach or assisted compliance view”.
It explained: “We’d expect PBS to support the firms they supervise to comply with expectations. This should not, however, be disproportionate and come at the cost of holding members to account for material non-compliance.
“In more extreme examples this could include PBSs providing templated documents for members to use to address a breach and achieve compliance.”
As a result, enforcement was the weakest area. “We’re concerned that some PBSs aren’t undertaking consistent, proportionate and sufficiently dissuasive disciplinary measures in circumstances where it would be warranted and justifiable.”
While there were “limited circumstances” where assisted compliance could be appropriate, OPBAS said, it “should not be the default preference”.
The report noted how one legal sector PBS developed an AI risk model as a tool to enhance its ability to predict and identify money laundering risks among its supervised population. OPBAS identified a problem with the PBS assigning all new firms a default medium risk rating.
“We encouraged the PBS, alongside continuing to develop its AI tool, to also explore ways to proportionately sample new firms to validate risk ratings and mitigate potential harm.
Between them, the PBSs employ 213 staff dedicated to AML supervision, with a combined annual spend of £15m.