“Strong improvement” in AML oversight by regulators

Money laundering: Legal regulators less engaged with intelligence share group

There has been a “strong improvement” among the legal regulators in England and Wales, Scotland and Northern Ireland in their approach to anti-money laundering (AML), their oversight body has reported.

The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) nonetheless found shortcomings in various areas, with legal regulators in many instances lagging behind their accountancy counterparts.

OPBAS was created in 2018 to oversee nine legal and 13 accountancy AML supervisors – the law societies and bar councils of the three UK jurisdictions (including also the Solicitors Regulation Authority and Bar Standards Board), the Chartered Institute of Legal Executives/CILEx Regulation, the Council for Licensed Conveyancers, and the Faculty Office of the Archbishop of Canterbury, which supervises notaries.

Each body pays a levy to cover the cost of OPBAS, which has two key objectives: to ensure a consistently high standard of AML supervision by the ‘professional body supervisors’ (PBSs); and to facilitate information and intelligence sharing between them and law enforcement bodies.

In a report published yesterday on progress and themes from 2019 that did not specify which regulators it was talking about, OPBAS said PBSs have responded differently to the challenges they face.

“Some have responded positively and implemented changes quickly. Others have been less proactive in their approach. We have delivered tough messages and used our regulatory powers where necessary.”

OPBAS has used its statutory powers of direction against three PBSs, ranging from requests for deadlines against promised actions to “more directive/restrictive measures”.

It added: “However, the full impact of changes introduced by PBSs has yet to be tested and assessed. The statistics also show some PBSs are still lagging behind their peers and must raise their standards further.”

Last year’s review highlighted various shortcomings, but this year’s recorded “a notable increase in appropriate governance arrangements for AML supervision” and more PBSs using a risk-based approach as well as conducting proactive supervision.

There was a sharp difference in enforcement between the legal and accountancy regulators. While legal PBSs issued 11 fines in 2018/19 for AML contraventions, up from nine the year before, accountancy PBSs issued 226 fines, compared to 85 in the previous 12 months.

“However, for the legal sector this amounted to an average of £31,954 per fine, whereas for the accountancy sector this was a much lower average of £652 per fine. All the fines in the legal sector came only from two PBSs, whereas there was a far more even spread in the accountancy sector with 54% issuing fines.”

Between in the year to 30 April 2019, 41% of PBSs did not take any kind of enforcement action for AML. “This indicates that inconsistencies of approach remain in this area,” OPBAS said.

Legal regulators were also generally lagging behind their accountancy counterparts in terms of the AML guidance they offered their regulated communities.

OPBAS and the National Economic Crime Centre have created intelligence sharing expert working groups (ISEWGs) for law and accountancy to improve intelligence sharing and supervisory collaboration between the PBSs, law enforcement and other statutory supervisors.

The report said: “Although we are encouraged that participation by the PBSs has driven more sophisticated internal controls such as secure email systems, security vetted staff and secure storage of intelligence, it is questionable why these basic requirements for intelligence sharing were not already in place, particularly given the size of some of the bodies lacking these safeguards.”

OPBAS also contrasted the “significant, open and constructive engagement by the accountancy sector with the ISEWGs” with the “more varied levels of engagement with the ISEWG” for the legal sector.

It explained: “Some PBSs are cautious about sharing anonymised intelligence even where there are terms of reference about how that information will be treated and disseminated.

“However, we note the legal ISEWGs are at an earlier stage than the accountancy ISEWGs and we hope to see the same trajectory over time.”

OPBAS said it would move into a risk-based approach to supervision this year

“Our approach will take into account: inherent risks in the PBSs and the sectors they oversee; weaknesses in anti-money laundering/counter-terrorist financing supervision that we found in each PBS; and AML strategies prepared in response to those findings (which have impacted our initial risk assessment of the PBSs).”

Last week’s Budget proposed a new levy on lawyers and others to help fund new government action to tackle money laundering and ensure delivery of the government’s economic crime plan.

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