Money Laundering A Rising Concern For Risk Managers

It is understood much of this relates to property deals but the FCA is understood to be working with banks to ensure they are dealing correctly with the problem.

In recent years, there has been considerable progress within financial services in creating a far more hostile environment for money launderers. But, for risk managers, keeping up with a raft of new rules aimed at keeping the crime in check is certainly challenging.

The UK remains an EU member until 2019 and so is subject to the latest regulations from the fourth EU anti-money laundering directive and no doubt this is unlikely to change post-Brexit. Key details of this include:

• Fully implemented on 26 June 2017
• Emphasis on ultimate beneficial ownership and enhanced customer due diligence
• Expanded definition of a politically exposed person
• Cash payment threshold lowered to €10,000, down from €15,000
• Entire gambling sector covered, not just casinos
• Brings in an enhanced risk-based approach, requiring evidence-based measures.

Details of the ultimate beneficial owner, namely anyone who owns or controls 25% of the company, will now be maintained on a centralised register, accessible by banks and law firms.

Firms will also have to apply for exemption from enhanced due diligence, which is a process that assesses whether customers will expose a company to risks including terrorist financing and money laundering.

Previously exemption was automatic under certain circumstances, including cases dealing with UK pension schemes and public authorities.

The implementation of the directive also means a uniform approach to politicians and others in political authority. Enhanced measures were only applicable to foreign politically exposed persons, but will now also affect British ones too.

Penalties for getting it wrong

In October, the FCA fined Sonali Bank (UK) some £3,250,600 and has imposed a restriction, preventing it from accepting deposits from new customers for 168 days.

It also fined the bank’s former money laundering reporting officer (MLRO), Steven Smith, £17,900 and prohibited him from performing the MLRO or compliance oversight functions at regulated firms.

Mark Steward, director of enforcement and market oversight at the FCA, said: “There is an abundance of guidance for firms on how to comply with AML and financial crime requirements and no excuse for failing to follow it. The FCA will not hesitate to take action against firms and senior individuals who fall short of our standards. As in this case, such action may include using our powers to restrict a firm’s continuing business.”

Meanwhile, the UK is also subject to new rules from HMRC aimed at cracking down on money laundering through trusts. Hundreds of thousands of trusts will be hit by the rules and HMRC now requires a detailed picture of the assets held, as well as the identities of trustees and beneficiaries.

Increased scrutiny

So it is clear that risk managers and those working in AML are now under increased pressures and scrutiny. But, while criminals are likely to find more loopholes are closing, some of their networks – typically for terrorist funding – are highly sophisticated and can be extremely complex for institutions to tackle alone.

In such cases, risk managers are likely to benefit from technology and to harness big data solutions and machine learning to spot suspicious transactional patterns than may evade human perception. What is more, such technology reduces ‘leg-work’ and cost.

Therefore, investment in these areas may well prove beneficial as the UK seeks to prove it is up to the task of reducing money laundering in all its guises.