FCA SAYS 18% of financial services and over 30% of accountancy firms are non-compliant with AML/CTF RULES

The FCA highlighted inadequate client and firm-wide risk assessments and insufficient compliance monitoring as among the main issues of non-compliance.

The perception of London as the world capital of illicit money has not diminished after an HM Treasury report on anti-money laundering (AML) and counter-terrorist financing (CTF) found 18% of financial services firms assessed were non-compliant with the rules, alongside more than a third of accountancy firms.

The Financial Conduct Authority (FCA) found that 4% of firms subject to a desk-based review by financial crime specialists in 2022/23 were non-compliant, while 14% of firms subject to an FCA onsite visit were rated non-compliant, according to the Treasury report.

The FCA found that inadequate client and firm-wide risk assessments, insufficient risk-sensitive or granular due diligence, and insufficient compliance monitoring were just some of the common issues of non-compliance.

The FCA is the supervisory authority for financial services firms in the UK. In 2022-23, around 18,000 firms were registered with the FCA for AML/CTF supervision.

Accountancy supervision

During the 2022/23 period, the most common breaches identified by the accountancy and legal Professional Body Supervisors (PBSs) included inadequate documented policies and procedures, inadequate client risk assessment or records and no or inadequate firm-wide risk assessment.

• Of the 34,309 supervised businesses in the accountancy sector, 56% were firms and 44% were sole practitioners.

Many PBSs noted a lack of knowledge or understanding of the regulations was “a common theme among firms with non-compliance or poor procedures”.

During the reporting period 2022/23, accountancy PBSs reported on average 17% of those subject to a desk-based review and 20% of those subject to an onsite visit were non-compliant with the money laundering requirements.

Critics of the UK system argue that supervision isn’t robust enough because sanctions are low, therefore seeming to suggest that effective supervision exists only when firms are found to be non-compliant.

HMRC is the supervisory body for estate and letting agencies, art market participants, high-value dealers, money service businesses and trust and company services providers, as well as accountancy providers that aren’t supervised by one of the accountancy Professional Body Supervisors (PBSs). These total around 35,411 firms.

Of the 1,741 onsite visits and desk-based reviews HMRC supervisors conducted, around 28% resulted in non-compliance. The most frequent forms of non-compliance included inadequate firm-wide risk assessment and inadequate policies, controls and procedures as well as inadequate customer due diligence. HMRC’s largest fine exceeded £1.5m during the reporting period of 2022/23.

The Financial Action Task Force (FATF), the global standard-setter for AML/CTF regulation, last assessed the UK in 2018 and it then recognised the UK regime as one of the strongest assessed by FATF to date. But the FATF said the UK’s supervision regime was only “moderately effective”.

The FATF highlighted specific weaknesses in the risk-based approach among the UK’s AML/CTF supervisors. In 2022, HM Treasury’s own review concluded that despite improvements, significant weaknesses remained in the UK’s supervision regime and there was a case for further reform.

Last year, the Treasury consulted on systemic reform and said it aimed to publish its findings “in due course” as well as setting out its next steps.

Meanwhile, the FATF is due to begin its fifth round of assessments of global efforts to tackle money laundering and terrorist financing. It is expected to be published in 2028.

UK supervisors conducted 5,253 desk-based reviews and onsite visits during the reporting period of 2022/23, which translates to 5.5% of AML/CTF-regulated businesses.

Baroness Vere of Norbiton, Parliamentary Secretary to the Treasury, said in the report that the Treasury was already consulting on updates to the Money Laundering Regulations and finalising a new effectiveness regime to

• “Better evaluate the effectiveness of AML/CTF supervision”.

SOURCE

https://www.icaew.com/insights/viewpoints-on-the-news/2024/jul-2024/firms-fall-short-on-antimoney-laundering-rules?utm_source=linkedin&utm_medium=social&utm_campaign=icaewdaily