Consultation outcome

Call for information: anti-money laundering supervisory regime

Updated 16 March 2017

1. Background

The government’s aim for the Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) regime is to make the UK financial system a hostile environment for illicit finances, while minimising the burden on legitimate businesses and reducing the overall burden of regulation.

The UK’s financial sector is one of the most sophisticated and open in the world. This brings huge advantages in terms of encouraging investment, entrepreneurship, and financial innovation – but it also makes it a target for criminals seeking to launder and move their ill-gotten gains around the world.

It is essential, therefore, that those businesses most likely to be targeted by such criminals are properly regulated and that the bodies in place to supervise them are effective and proportionate. The UK has an anti-money laundering and counter-terrorist financing regime that makes the UK a hostile environment for illicit finance. The regime relating to Politically Exposed Person (PEPs) will be both robust and proportionate, with resources focused on higher-risk individuals in line with international best practice.

The Financial Action Task Force (FATF) sets out high-level principles for the organisation of national AML/CFT regimes and demands that jurisdictions should ensure effective supervision of regulated entities on a risk-sensitive basis by supervisors that have adequate powers to ensure compliance.

The government is committed to upholding these principles and to showing that the UK has an effective AML/CFT regime during its Mutual Evaluation which will be conducted by FATF in 2017/18.

In preparation for the Mutual Evaluation and the transposition of the European Union’s Fourth Money Laundering Directive, the government published the National Risk Assessment (NRA) of ML/TF risks in October 2015.

This found that, while the UK’s response to money laundering and terrorist financing risks is well developed, more could be done to strengthen the AML and CFT regime. Of interest to this call for information is the finding that:

The effectiveness of the supervisory regime in the UK is inconsistent. Some supervisors are highly effective in certain areas, but there is room for improvement across the board, including in understanding and applying a risk-based approach to supervision and in providing a credible deterrent.

The large number of professional body supervisors in some sectors risks inconsistencies of approach. Data is not yet shared between supervisors freely or frequently enough, which exposes some supervised sectors where there are overlaps in supervision[footnote 1].

Currently, the Treasury has responsibility for appointing and removing the supervisors through the Money Laundering Regulations. The Treasury engages with the supervisors, law enforcement, and the regulated populations through fora such as the Money Laundering Advisory Committee, the Anti-Money Laundering Supervisors’ Forum, and the Financial Sector Forum as well as monitoring their activities through an annual Supervisor’s Report.

However, there is no formal and systematic mechanism for assessing performance and driving changes.

The government has committed to dealing with the issues raised in the NRA and seeks views from supervisors, regulated businesses, NGOs and the public on how best to address them.

It is important that in considering how to improve the regime we do not create needless burdens on business and the government launched a review of the impact on the business of the current AML/CFT regime as part of the Cutting Red Tape programme in August 2015. Evidence gathered through that review will be fully considered when looking at how to improve the regime.

1.1 Scope

The scope of this call for information is the AML/CFT supervisory regime, focusing on the system of appointing supervisors, the powers of supervisors to incentivise compliance, adoption of the risk-based approach and how they interact with supervised businesses.

The Home Office is conducting a review of the structure of the Suspicious Activity Reports (SARs) regime which is an important element of the AML/CFT regime, so this will be out of the scope of this call for information.

1.2 Purpose

The purpose of this call for information is to enable the government to examine options to improve the supervisory regime and address inconsistencies, ensuring that the UK’s regime is effective, proportionate and meets the standards set down by FATF.

Once the government has a fuller picture of the benefits and risks, it will be able to take an informed decision on what changes are needed.

2. Identification of risks

The first step in taking a risk-based approach to combatting money laundering and terrorist financing is to have a robust methodology for identifying and assessing risks. Supervisors have developed their own risk assessment methodologies largely independently and these are not always directly comparable.

Where a number of supervisors cover similar types of business, having a methodology that is significantly different may give rise to inconsistencies, for example potentially leading to two supervisors viewing the same business type as having materially different risks.

The NRA found that some supervisors had difficulties explaining how their risk assessment translates into specific monitoring activities. This does not mean that supervisors are not taking a risk-based approach or that their risk assessments do not inform their monitoring decisions, but it does suggest that the communication of monitoring decisions needs to be improved.

Once risks have been identified and assessed, supervisors should allocate resources accordingly and focus on areas of highest risk. However, this does not mean that other areas should be neglected and it is important that ongoing monitoring enables supervisors to detect new risks or changes to existing risks that necessitate a reallocation of resources.

The NRA found that there is a risk of the priority attached to AML/CFT supervision by supervisors varying over time as it is prioritised against assessments of compliance in other areas, although there is no evidence that individual supervisors are not sufficiently prioritising AML/CFT efforts.

Question 1. Should the government address the issue of non-comparable risk assessment methodologies and if so, how? Should it work with supervisors to develop a single methodology, with appropriate sector-specific modifications?

Question 2. How should the government best support supervisors – and supervisors support each other – to link their risk assessments to monitoring activities and to properly articulate how they do so?

Question 3. Should the government monitor the identification and assessment of risks by the supervisors on an ongoing basis? Should the supervisors monitor each other’s identification and assessment of risks? How might this work?

Question 4. Should smaller supervisors be encouraged to pool AML/CFT resources into a joint risk function and would this lead to efficiencies? If so, how should they be encouraged?

Question 5. How should the ability of the supervisors and law enforcement agencies to share information on risks be improved?

3. Supervisors Accountability

To have confidence in the supervisory regime it is important that government is able to hold supervisors to account and ensure that they are carrying out their duties in an effective and proportionate manner.

The variety of supervisory models means that government does not have the same influence over each supervisor, while statutory bodies (such as the FCA) are answerable to parliament, professional bodies which are granted authority to supervise by the Treasury are ultimately answerable to their members.

While the Treasury has instigated an annual report on the activities of the supervisors, not all supervisors submit returns, and the mechanism for assessing their performance in detail, identifying weaknesses and ensuring that action is taken could be strengthened.

While most supervisors attend the AML/CFT Supervisors’ Forum (AMLSF) and meet in the smaller affinity groups (accountancy, public sector and legal), these fora provide a means of information exchange and discussion rather than challenge, support and accountability.

Some supervisors are also members of the Money Laundering Advisory Committee (MLAC) along with representatives from industry, law enforcement and government departments, this provides another forum for discussion and advises the government on its approach to preventing money laundering.

It has been suggested that a clear and transparent method for ‘supervising the supervisors’ is needed, not only to create a well-understood mechanism for holding them to account but also to give supervisors support and clarity on what is expected of them.

The government is interested in views on whether such a mechanism is required and, if so, what it might look like.

Question 6. To promote discussions between the supervisors, should attendance at the AMLSF and submission of an annual return to the Treasury be made compulsory for supervisors? How could the government ensure that this happened?

Question 7. Could the Money Laundering Advisory Committee (MLAC) have a greater role in driving improvements in the supervisory regime?

Question 8. Should the government instigate a formal mechanism for assessing the effectiveness of all the supervisors AML/CFT activities with the power to compel action to address shortcomings? If so, should this be carried out by the Treasury directly, through another body such as the National Audit Office, or through creating a new body, perhaps along the same lines as the Legal Services Board which oversees legal services supervisors or the Financial Reporting Council which promotes high-quality corporate governance and reporting? Are there other ways of ensuring effectiveness that should be considered?

Question 9. Would an overarching body be able to add value by maintaining a more strategic view of the entire AML/CFT landscape and identifying cross-cutting issues which individual supervisors might struggle to identify? Should such a body have the authority to guide and compel the activities of the supervisors, up to and including the power to revoke approval for bodies to be supervisors?

4. Penalties and Enforcement

Supervisors should use appropriate enforcement procedures when AML/CFT breaches have been identified. Under the Money Laundering Regulations and the Fourth Money Laundering Directive, penalties should be “effective, proportionate and dissuasive”.

Furthermore, article 59 of 4AMLD sets out minimum requirements for measures that should be available in cases of serious, repeated or systematic breaches.

There is no common approach across all supervisors to using enforcement tools to incentivise AML/CFT compliance. Typically, if a supervised business cannot provide evidence that it is applying AML/CFT controls to a satisfactory standard, a supervisor will schedule a follow-up visit to ask for evidence of improvement, leading to a referral to an investigation department if no credible evidence is forthcoming.

There is scope for supervisors to take differing approaches in enforcing AML/CFT compliance, and for supervisors to take differing views on whether education or sanctions are the most appropriate remedy in a given situation.

There is also no common approach to the use of sanctions or in setting the level of penalties applicable and this could give rise to inconsistencies. While some supervisors are not limited to the fines that they can impose, others set limits as low as £2500.

It should be noted that having different upper limits for fines may not necessarily lead to an inconsistent approach to enforcement, provided that any penalty levied is proportionate to the breach that is being sanctioned.

The supervised population ranges from sole traders to multi-national corporations, so an effective regime should not seek consistency in the absolute level of penalties but the approach should be proportionate – that is, there should be consistency in the way that supervisors decide on penalties and consistency in their effect.

To this end, article 60(4) of 4AMLD sets out a non-exhaustive list of circumstances that should be taken into account when deciding on the type and level of administrative sanctions to apply.

Some supervisors have indicated that they can “fast track” disciplinary matters once a member has been convicted of an offence. However, the speed of the procedure varies from a matter of weeks to 6 months after conviction, potentially allowing a convicted criminal to practice for up to 6 months even after conviction.

Public sector supervisors (such as HMRC) can also be constrained in “naming and shaming” those subject to conviction, which could reduce their ability to incentivise compliance although it should be noted that article 60 of 4AMLD imposes, in certain circumstances, a duty to publish decisions where a penalty is imposed.

Furthermore, many of the supervisors currently already share information on members that have been disciplined for AML/CFT related breaches with the aim of ensuring continuity should they seek to move to a new supervisor within the same sector.

There are variations in how the discipline/enforcement committees of supervisors are constituted. Whilst some supervisors have discipline procedures that are operationally independent of the supervisor, others have no lay members, external oversight or recourse to an independent disciplinary tribunal.

Supervisors’ disciplinary procedures should have sufficient independence to instil public confidence and there should be an adequate appeals system in place.

Finally, different supervisors have different powers to investigate their supervised populations. The Money Laundering Regulations allow FCA staff and officers of HMRC the power to require information from and attendance of relevant and connected persons, including the power to require the relevant person to attend before an officer at a specified time and place and answer questions.

The Money Laundering Regulations also give powers to HMRC and FCA to enter premises with or without a warrant, and this does not directly apply to the other supervisors.

Furthermore, HMRC have authority to instigate proceedings for breaches of the Regulations that are prosecuted by the Crown Prosecution Service, whereas the other public sector supervisors (the FCA and the Gambling Commission) do not.

The Gambling Commission does, however, have powers to take regulatory action under the Gambling Act for breaches in AML/CFT compliance, including suspension or revocation of a licence. Professional bodies, on the other hand, lack such direct powers to compel.

Question 10. Should the government seek to harmonise approaches to penalties and powers? For example, should supervisors have access to a certain minimum range of penalties and powers and what should these be? Should there be a common approach for deciding on penalties and calculating fines based on variables such as turnover that are scalable to the size of the business?

Question 11. Should the government seek to establish a single standard for supervisors disciplinary and appeals functions?

Question 12. Does the inability of some supervisors to directly compel the attendance of relevant persons to answer questions or to enter premises reduce their ability to effectively supervise, or is liaison with law enforcement agencies an appropriate mechanism? If so, how could the government address this?

5. Ensuring high standards in supervised populations

Supervisors have a range of criteria that supervised businesses must meet. These can include adherence to codes of conduct, undergoing a fit and proper person test or requirements to obtain qualifications and training in order to be accepted for the purposes of supervision.

Supervisors may also require their population to carry out continuing professional development in order to retain accreditation. The requirements will vary depending on the supervisor, and there may, in some cases, be no requirement to meet professional standards in order to become supervised.

There are also barriers to supervisors informing themselves of the background of their supervised populations, making it difficult to effectively manage entry into the sector. Most supervisors do not have access to police databases and therefore do not know, other than through declarations, if a person has a criminal conviction.

Not all supervisors have powers to carry out a fit and proper test of the supervised population. Supervisors may also lack appropriate powers to deregister those who are no longer deemed fit and proper. In some sectors, individuals or businesses deregistered by one supervisor may continue to practice by simply registering with an alternate supervisor.

The government will consider the extension of fit and proper tests and the ability of supervisors to de-register businesses/individuals as part of its forthcoming consultation on the transposition of the Fourth Money Laundering Directive and submissions to that consultation are encouraged.

While most supervisors require the supervised population to complete a comprehensive annual return containing information on the firm, principals, shareholders, and management; not all supervisors can compel the supervised population to do so.

Therefore, they may not have access to up-to-date information, making it difficult to carry out a risk assessment of the activity carried out by a supervised business.

Supervisors also work with their regulated populations in a number of ways to drive up standards, including through the use of more collaborative methods such as; industry workshops, bulletins, continuous professional development etc.

Question 13. Should all supervisors have powers to compel supervised businesses to submit comprehensive and up-to-date information to aid risk assessment?

Question 14. Is there a need for supervisors themselves to undergo training and/or continuous professional development? Is so, what form might this take and should it be government-recognised?

Question 15. Is there a need for relevant persons in the supervised populations across all sectors to undergo training and/or continuous professional development to aid their understanding of AML/CFT issues?

6. The role of professional bodies in AML/CFT supervision

The Treasury follows best practice on better regulation by allowing professional body supervision for AML/CFT. The NRA found that there is a risk that conflicts of interest could compromise professional body supervision as these bodies represent and are funded by the firms they supervise.

A report published in February 2013 into the economic and legal effectiveness of AML/CFT policy raised concerns around the role of trade bodies in supervision.

The study[footnote 2], published by Utrecht University, noted that “a high number of sanctions imposed by the professional association could lead to the impression that the professionals do not maintain a high-quality standard.”

The evidence gathered through the consultation undertaken as part of the NRA process did not indicate that this potential conflict of interest is undermining supervision, but the perception of risk remains very real.

In Sir David Clementi’s report [footnote 3] of 2004, he quotes from the Council for Licensed Conveyancers:

It is difficult to understand how one body can effectively both regulate a profession and also represent and lobby for its interests without prejudice to either its regulatory or representative functions.

The report argues that issues such as changes in practice should be examined, not against the wishes of the membership, but against the test of public interest and, even where a body does place the public interest ahead of that of its members, there remains an issue of perception.

The Clementi report led to the establishment of the Legal Services Board and the separation of lobbying and supervisory functions for lawyers in England and Wales. This separation mitigates the risk of conflict of interest, as recognised by the NRA.

Furthermore, it may make it easier for law enforcement to share information with supervisors if the supervisory arm is distinct from the representative arm and is established with appropriate safeguards and firewalls to give confidence that sensitive information would be protected.

Question 16. What safeguards should be put in place to ensure that there is sufficient separation between the advocacy and AML/CFT supervisory functions in professional bodies? To what extent are appropriate safeguards already in place?

Question 17. Should the government mandate the separation of representative and AML/CFT supervisory roles? What impacts might this have on the professional bodies themselves?

Question 18. How does the UK approach to professional body supervision compare to other countries’ regimes?

7. Guidance

The international AML/CFT standards set by the Financial Action Task Force (FATF) require supervisors to provide their supervised population with a clear understanding of their AML/CFT obligations and ML/TF risks. This can include the production of AML/CFT guidance.

Currently, supervisors and other stakeholders produce guidance which provides assistance for firms in their sector on the practical application of the Money Laundering Regulations. The Treasury does not currently issue guidance on the interpretation of the Money Laundering Regulations but instead may approve the guidance produced by supervisors and industry bodies.

Treasury approved guidance means that a court must consider whether the person followed the guidance when deciding whether they failed to comply with the Regulations (or the POCA or the Terrorism Act 2000).

Evidence submitted to the Cutting Red Tape Review suggests that the large number of supervisors has resulted in a great deal of Treasury approved guidance. The current process for obtaining Treasury approval for each piece of guidance is criticised by respondents as inefficient and taking too long.

Further, submissions to the review suggest that much of the guidance itself is too long, challenging to understand and is jargon-laden. Respondents complained that there is insufficient clarity around the difference between minimum legal requirements and best practice.

The status of the FCA Financial Crime Guide is specifically mentioned as being unclear and inconsistent with the guidance produced by the Joint Money Laundering Steering Group (JMLSG), a finance, trade and banking industry consortium.

This results in firms having to familiarise themselves with multiple sets of guidance which, it is felt, often does not provide enough specific or practical advice on how to comply, leading to businesses being unsure of what is expected of them, or going beyond expected levels of compliance in order to minimise risk of being found non-compliant.

The government may consider, in cooperation with industry and supervisors, taking a more active role in the production of guidance that explains the legal framework of the UK’s AML/CFT regime.

Guidance on how to apply this legal framework to the particular sector, along with examples of best practice, would then be produced by appropriate industry and supervisory bodies and may not require Treasury approval.

This could result in a consolidation in the amount of AML/CFT guidance produced and provide greater clarity to supervisors and to business.

Question 19. How could inconsistencies between the JMLSG guidance and the FCA’s Financial Crime Guide best be resolved? Should the two be merged? Or should one be discontinued and if so, which one and why?

Question 20. What alternative system for approving guidance should be considered and what should the government’s role be? Is it important to maintain the principle of providing legal safe harbour to businesses that follow the guidance?

Question 21. Should the government produce a single piece of guidance to help regulated businesses understand the intent and meaning of the Money Laundering Regulations, leaving the supervisors and industry bodies to issue specific guidance on how different sectors can comply? If so, would this industry guidance need to be Treasury approved? Should it be made clear that the supervised population is to follow the industry guidance?

8. Transparency

A transparent AML/CFT regime is more likely to maintain public confidence in the UK’s approach to tackling money laundering and terrorist financing. The publication of National Risk Assessment had the clear objective of enabling a better understanding of the UK’s money laundering and terrorist financing risks, informing the efficient allocation of resources and mitigating money laundering and terrorist financing risks.

Taking an open approach to improving the understanding of money laundering and terrorist financing risks should assist the government, supervisors and the private sector in targeting their resources at the areas of highest risk.

In a drive towards greater transparency in AML/CFT supervision, the Treasury has developed a voluntary reporting process for supervisors which is now in its fifth year.

The Annual Supervision Report plays a key role in encouraging good practice and improving the transparency and accountability of supervision and enforcement in the UK. It should also be noted that 4AMLD further encourages transparency and article 60 requires the publication of details of enforcement action in certain circumstances.

A transparent approach means that all – government, supervisors, and the private sector –can be held to account for their contribution in the fight to protect the UK from the scourge of money laundering and terrorist financing.

With this in mind, concerns that a candid approach which sets out the risks and vulnerabilities would serve as a roadmap to criminals should be balanced against the argument that openly identifying weaknesses provides a strong impetus for change.

This argument holds that it is only through identifying and sharing understanding of weaknesses that these can be addressed, in order to ensure that the UK’s AML/CFT regime is robust, proportionate and responsive to emerging threats.

Question 22. Should supervisors be required to publish details of their enforcement actions and enforcement strategy, perhaps as part of the Treasury’s annual report on supervisors, or in their own reports? What are the benefits and risks in doing so?

Question 23. Should the government publish more of the detail gathered by the annual supervisor’s report process? For example, sharing good practice or weaknesses across all supervisors?

Question 24. Should supervisors be required to undertake thematic reviews of particular activities or sections of their supervised populations, as the FCA currently does? If so, how often should such reviews be undertaken?

9. Information sharing

A key component of an effective AML/CFT regime is the effective sharing of information between supervisors and law enforcement agencies, and among supervisors. The NRA notes that supervisors collectively need to share more information with each other in order to properly mitigate the risks.

For a supervisor to act effectively it must have information-sharing gateways and appropriate mechanisms that allow it and law enforcement to share information to counter money laundering and terrorist financing. The ability to share skills, knowledge and experiences can also add to the overall effectiveness of supervision.

Following of review of the Money Laundering Regulations in 2012, the Treasury amended the Regulations to provide a legal gateway to allow supervisors to disclose information to other UK supervisors relevant to their functions.

This enables supervisors to inform each other of firms or individuals they have de-registered or have particular concerns about, in order to help prevent regulatory arbitrage and non-compliant firms from evading proper controls.

The Financial Crime Information Network (FIN-NET) is an organisation that operates under the umbrella of the FCA and allows the sharing of information between law enforcement and regulators on specific individuals and entities.

Membership of FIN-NET requires certain pre-requisites, appended to this document. While some AML/CFT supervisors are full members of FIN-NET, the majority are not.

Another inconsistency with regard to the sharing of information is that regulation 25 of the Money Laundering Regulations requires HMRC to keep registers for certain sectors that it supervises, including High Value Dealers (HVDs), Money Service Businesses (MSBs) and Trust or Company Service Providers (TCSPs).

The FCA also keeps a list of authorised firms on its register which is easily searchable but there is no such obligation on legal and accountancy service providers to keep registers for TCSPs and the FCA is not obliged to keep a register for MSBs or TCSPs that it supervises. The Regulations allow for HMRC to publish these registers, but they currently do not do so.

Question 25. What is the best way to facilitate intelligence sharing among supervisors and between supervisors and law enforcement? What safeguards should be imposed?

Question 26. As one means of facilitating better sharing of intelligence among supervisors and between supervisors and law enforcement, could the government mandate that all supervisors should fulfil the conditions for, and become members of, a mechanism such as FIN-NET? Are there other suitable mechanisms, such as the Shared Intelligence System (also hosted by the FCA)?

Question 27. Should the government require all supervisors to maintain registers of supervised businesses? If so, should these registers cover all registered businesses or just certain sectors? Should such registers be public? What are the likely costs and benefits of doing so?

10. Ensuring the effectiveness of the FCA

The UK is a global financial centre, and is home to some of the most successful international financial services firms in the world as well as being the largest centre for cross-border bank lending. Because of the size and complexity of the sector it is exposed to criminals who seek to use it to move and disguise the proceeds of crime and funds of terrorism. As the conduct supervisor for credit and many financial institutions, the Financial Conduct Authority (FCA) plays a key role in protecting the financial sector from ML/TF threats and the government is particularly motivated to ensure that the FCA is able to effectively mitigate the risks presented.

Egregious cases of banks allowing themselves to be used for ML/TF purposes may have effects beyond simply damaging the reputation of the UK financial sector and facilitating the predicate offence(s).

In such a situation, enforcement action against the offending bank by a regulator or law enforcement agency could potentially lead to fines or revocation of licences which lead to the failure of the bank. This could, depending on the size of the bank, have systemic implications.

This makes it all the more important that the FCA is able to effectively monitor banks and ensure that their systems prevent such breaches occurring.

The FCA seeks to apply a risk-based approach to its supervision of banks and other financial institutions. In 2014 it adapted its approach to AML/CFT supervision to try to target its resource more effectively and focuses on firms that present the highest money laundering risks, irrespective of their size.

This includes carrying out deep dive assessments of major retail and investment banks as part of the Systematic Anti-Money Laundering Programme (SAMLP), regular inspections of smaller firms that are assesses as higher risk, thematic reviews and event-driven work, for example when a high risk of financial crime is identified.

The FCA also publishes a Financial Crime Guide which gives specific guidance on anti-money laundering and countering the financing of terrorism, including examples of good practice.

Submissions to the Cutting Red Tape review show there is a perception that the FCA’s supervision can focus on procedural requirements which are thought not be the most effective way of detecting and preventing money laundering and terrorist financing.

This narrative contends that ‘tick-box’ approach by the FCA prevents banks from adopting truly effective approaches and leads them to ‘over-compliance’ – that is, demanding information from customers or imposing procedures that would not be required under a truly risk-based approach and are not demanded by regulations – as well as withdrawing from certain services or classes of customer in order to avoid the risk of regulatory sanctions.

However, it should be noted that in order to assess the AML/CFT regime of an institution, there will be a need to do a certain amount of checking of procedures and policies which may, erroneously, be seen as ‘box-ticking’.

It has been suggested that the FCA’s approach to supervising the financial sector for AML/CFT compliance leads to smaller firms not receiving the scrutiny that might be warranted under a truly risk-based approach, due to the FCA’s focus on the largest firms.

Question 28. How can credit and financial institutions best be encouraged to take a proportionate approach to their relationships with customers and avoid creating burdensome requirements not strictly required by the regulations?

Question 29. Does failure of AML/CFT compliance pose a credible systemic financial stability risk? If so, does this mean that the FCA should devote more resource to the largest banks which have the greatest potential to have systemic effects?

Question 30. How should the FCA address the perception from evidence submitted to the Cutting Red Tape Review that it is overly focused on process and ensure that its AML/CFT supervision is focused proportionately on firms which pose the greatest risk?

11. The number of supervisors

The UK’s supervisory regime is unique in respect of the number and diversity of bodies that supervise businesses for AML/CFT purposes. These range from statutory regulators to professional bodies and the system has grown up organically over the years.

There are currently 27 bodies appointed by Treasury as AML/CFT supervisors. This may provide advantages, allowing supervisors to leverage their specialist knowledge of their sectors in order to more effectively manage the risk of financial crime. However, there can be an overlap in the sectors covered by supervisors.

A number of the inconsistencies outlined in this document could potentially be addressed by encouraging the supervisors to work in similar ways or establishing other means of oversight. However, there is an argument that it is simply the number of bodies in existence which give rise to more opportunities for inconsistency.

While this makes mechanisms that allow cooperation and sharing of best practice among supervisors all the more important, the government is also interested in views as to whether the high number by itself makes achieving greater consistency difficult and whether consideration should be given to consolidation.

Question 31. Is the number of supervisors in itself a barrier to effective and consistent supervision? Is so, how should the number be reduced and what number would allow a consistent approach?

Question 32. If this is an issue, are there other ways to address it? For example, would supervisors within a single sector benefit from pooling their AML/CFT resources and establishing a joint supervisory function?

12. Summary

12.1 List of questions

  1. Should the government address the issue of non-comparable risk assessment methodologies and if so, how? Should it work with supervisors to develop a single methodology, with appropriate sector-specific modifications?

  2. How should the government best support supervisors – and supervisors support each other – to link their risk-assessments to monitoring activities and to properly articulate how they do so?

  3. Should the government monitor the identification and assessment of risks by the supervisors on an ongoing basis? Should the supervisors monitor each other’s identification and assessment of risks? How might this work?

  4. Should smaller supervisors be encouraged to pool AML/CFT resources into a joint risk function and would this lead to efficiencies? If so, how should they be encouraged?

  5. How should the ability of the supervisors and law enforcement agencies to share information on risks be improved?

  6. To promote discussions between the supervisors, should attendance at the AMLSF and submission of an annual return to the Treasury be made compulsory for supervisors? How could the government ensure that this happened?

  7. Could the Money Laundering Advisory Committee (MLAC) have a greater role in driving improvements in the supervisory regime?

  8. Should the government instigate a formal mechanism for assessing the effectiveness of all the supervisors AML/CFT activities with the power to compel action to address shortcomings? If so, should this be carried out by the Treasury directly, through another body such as the National Audit Office, or through creating a new body, perhaps along the same lines as the Legal Services Board which oversees legal services supervisors or the Financial Reporting Council which promotes high quality corporate governance and reporting? Are there other ways of ensuring effectiveness that should be considered?

  9. Would an overarching body be able to add value by maintaining a more strategic view of the entire AML/CFT landscape and identifying cross-cutting issues which individual supervisors might struggle to identify? Should such a body have the authority to guide and compel the activities of the supervisors, up to and including the power to revoke approval for bodies to be supervisors?

  10. Should the government seek to harmonise approaches to penalties and powers? For example, should supervisors have access to a certain minimum range of penalties and powers and what should these be? Should there be a common approach for deciding on penalties and calculating fines based on variables such as turnover that are scalable to the size of the business?

  11. Should the government seek to establish a single standard for supervisors disciplinary and appeals functions?

  12. Does the inability of some supervisors to directly compel attendance of relevant persons to answer questions or to enter premises reduce their ability to effectively supervise, or is liaison with law enforcement agencies an appropriate mechanism? If so, how could the government address this?

  13. Should all supervisors have powers to compel supervised businesses to submit comprehensive and up-to-date information to aid risk assessment?

  14. Is there a need for supervisors themselves to undergo training and/or continuous professional development? Is so, what form might this take and should it be government-recognised?

  15. Is there a need for relevant persons in the supervised populations across all sectors to undergo training and/or continuous professional development to aid their understanding of AML/CFT issues?

  16. What safeguards should be put in place to ensure that there is sufficient separation between the advocacy and AML/CFT supervisory functions in professional bodies? To what extent are appropriate safeguards already in place?

  17. Should the government mandate the separation of representative and AML/CFT supervisory roles? What impacts might this have on the professional bodies themselves?

  18. How does the UK approach to professional body supervision compare to other countries’ regimes?
  19. How could inconsistencies between the JMLSG guidance and the FCA’s Financial Crime Guide best be resolved? Should the two be merged? Or should one be discontinued and if so, which one and why?

  20. What alternative system for approving guidance should be considered and what should the government’s role be? Is it important to maintain the principle of providing legal safe harbour to businesses that follow the guidance?

  21. Should the government produce a single piece of guidance to help regulated businesses understand the intent and meaning of the Money Laundering Regulations, leaving the supervisors and industry bodies to issue specific guidance on how different sectors can comply? If so, would this industry guidance need to be Treasury approved? Should it be made clear that the supervised population is to follow the industry guidance?

  22. Should supervisors be required to publish details of their enforcement actions and enforcement strategy, perhaps as part of the Treasury’s annual report on supervisors, or in their own reports? What are the benefits and risks in doing so?

  23. Should the government publish more of the detail gathered by the annual supervisor’s report process? For example, sharing good practice or weaknesses across all supervisors?

  24. Should supervisors be required to undertake thematic reviews of particular activities or sections of their supervised populations, as the FCA currently does? If so, how often should such reviews be undertaken?

  25. What is the best way to facilitate intelligence sharing among supervisors and between supervisors and law enforcement? What safeguards should be imposed?

  26. As one means of facilitating better sharing of intelligence among supervisors and between supervisors and law enforcement, could the government mandate that all supervisors should fulfil the conditions for, and become members of, a mechanism such as FIN-NET? Are there other suitable mechanisms, such as the Shared Intelligence System (also hosted by the FCA)?

  27. Should the government require all supervisors to maintain registers of supervised businesses? If so, should these registers cover all registered businesses or just certain sectors? Should such registers be public? What are the likely costs and benefits of doing so?

  28. How can credit and financial institutions best be encouraged to take a proportionate approach to their relationships with customers and avoid creating burdensome requirements not strictly required by the regulations?

  29. Does failure of AML/CFT compliance pose a credible systemic financial stability risk? If so, does this mean that the FCA should devote more resource to the largest banks which have the greatest potential to have systemic effects?

  30. How should the FCA address the perception from evidence submitted to the Cutting Red Tape Review that it is overly focused on process and ensure that its AML/CFT supervision is focused proportionately on firms which pose the greatest risk?

  31. Is the number of supervisors in itself a barrier to effective and consistent supervision? Is so, how should the number be reduced and what number would allow a consistent approach?

  32. If this is an issue, are there other ways to address it? For example, would supervisors within a single sector benefit from pooling their AML/CFT resources and establishing a joint supervisory function?

12.2 Responses

The Treasury welcomes your views in response to the questions posed in this Annex and would be keen to hear views on how to best deal with the issues raised with a view to making the supervisory regime more effective. This will help ensure evidence-based policy decisions in these areas.

Electronic responses are preferred and should be sent to: aml@hmtreasury.gsi.gov.uk. Questions or enquiries specifically relating to this consultation should also be sent to the above email address.

Please include the words CONSULTATION VIEWS or CONSULTATION ENQUIRY (as appropriate) in your email title. If you do not wish your views to be published alongside the government response to this consultation, please clearly specify this in your email.

Hard copy responses may be submitted to:

Review of AML/CFT Supervision
Illicit Finance Unit
1st Floor Blue
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ

12.3 Confidentiality and Disclosure policy

Information provided in response to this consultation, including personal information, might be published or disclosed in accordance with the access to information regimes. These are primarily the Freedom of Information Act 2000 (FOIA) and the Data Protection Act (DPA). If you want the information that you provide to be treated as confidential, please be aware that, under the FOIA, there is a statutory Code of Practice with which public authorities must comply with and which deals, amongst other things, with obligations of confidence.

In view of this it would be helpful if you could explain to the Treasury why you regard the information you have provided as confidential. If government receives a request for disclosure of the information, the Treasury will take full account of your explanation, but it cannot give an assurance that confidentiality will be maintained in all circumstances.

An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on the Department. Your personal data will be processed in accordance with the DPA, and in the majority of circumstances, this will mean that your personal data will not be disclosed.

12.4 Timetable

The closing date for comments to be submitted is 2 June 2016.