FATF Critical Of Legal Sector’s AML Systems

The intergovernmental Financial Action Task Force have produced a report this month assessing the UK’s ability to combat money laundering and terrorist financing. Overall, the report claimed that the UK’s ‘AML/CFT regime is effective.’ However, the report was critical of both the regulators’ ability to supervise and the legal sector’s ability to effectively apply preventative measures that adhere to the 2017 Anti-money Laundering (AML) legislation.

The Anti-money Laundering and Counter Terrorist Financing Measure for the UK report, said “The UK’s overall AML/CFT regime is effective in many respects. It needs to address certain areas of weakness, such as supervision and the reporting and investigation of suspicious transactions.  However, the country has demonstrated a robust level of understanding of its risks, a range of proactive measures and initiatives to counter the significant risks identified and plays a leading role in promoting global effective implementation of AML/CFT measures.”

In terms of technical appliance, the report found that Financial Institution units are only partially compliant with the expected regulations.

Regulators/supervisors were deemed to be only moderately effective at monitoring and regulating financial institutions and designated non-financial businesses and professions (DNFBPs) for compliance with AML/FT requirements. The report concluded that more needed to be done to ‘dissuade’ law firms from non-compliance by implementing more severe ‘sanctions.’

The report found that the priority actions for the UK to strengthen its AML/CFT system are to: “continue its efforts to address the significant weaknesses in supervision by the 22 legal and accountancy sector supervisors through: ensuring consistency in ML/TF risk understanding; taking a risk-based approach to supervision; and ensuring that effective and dissuasive sanctions apply.”

Similarly, given that regulators were criticised for their ability to supervise, it is unsurprising that law firms, financial institutions and DNFBPs were viewed as only moderately effective at adequately applying AML/CFT preventative measures and reporting suspicious transactions. This may emphasise what the legal sector has been crying out for since the 2017 regulations came into force: a declarative and consistent set of guidelines on AML protocols.

Additionally, firms and regulators ensuring adequate and enhanced due diligence were viewed as only ‘largely compliant’. When assessing risks and applying a risk-based approach, regulators and firms were also only largely compliant, highlighting a clear need for more definitive guidance when it comes to identifying high risk individuals.

The Anti-money Laundering and Counter Terrorist Financing Measure for the UK report, said: “Available financial intelligence and analysis is regularly used by a wide range of competent authorities to support investigations of money laundering and terrorist fund and related predicate offences, trace assets, enforce confiscation orders and identify risks.

“However, the UK has made a deliberate policy decision to limit the role of the UK Financial Intelligence Unit (UKFIU) in undertaking operational and strategic analysis which calls into question whether Suspicious Activity Report (SAR) data is being fully exploited in a systematic and holistic way and providing adequate support to investigators.

“Additionally, while reports of a high quality are being received, the SAR regime requires a significant overhaul to improve the quality of financial intelligence available to the competent authorities.

“The UK’s overall AML/CFT regime is effective in many respects. It needs to address certain areas of weakness, such as supervision and the reporting and investigation of suspicious transactions.  However, the country has demonstrated a robust level of understanding of its risks, a range of proactive measures and initiatives to counter the significant risks identified and plays a leading role in promoting global effective implementation of AML/CFT measures.”

Following this report, it is hoped that regulators collaborate on creating a holistic and consistent set of guidelines to help firms understand how to become compliant.

As a conveyancer, are you confused by your obligations when assessing a buyer’s source of funds or wealth? What could be done to make this process easier?

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