2021 – A year of change in UK & US regulatory landscapes
Year-on-year, the number of enforcement actions and penalties for non-compliance with anti-money laundering (AML) legislation continues to rise. And 2021 has proved to be no exception this trend.
Globally, regulators continue to be aggressive, and AML penalties in Europe have recently surpassed those issued in the United States.
In this article, we’ll explore the changing regulatory environment, current challenges, and typology trends to offer context for financial institutions and organisations planning for Europe’s growing climate of AML enforcement action.
We’ll also dig-deeper into the quest for ‘effectiveness’ in AML and identify important characteristics that should be present in a well-designed AML programme.
For some historical context, in 2019, 58 AML fines totalling US$8.14 billion were issued globally, compared to 29 penalties totalling US$4.27 billion in 2018. In less than a year, fines had nearly doubled.
Come the end of 2020, global AML fines for financial institutions increased again to more than US$10.3 billion {1} .
With all of that in mind, which AML and KYC priorities you should prioritise as we look ahead to 2022?
UK regulatory landscape overview
Although the UK is no longer compelled to apply EU AMLDs, it is probable that UK AML legislation will continue to match, if not surpass, European Union AML regulations.
The Proceeds of Crime Act 2002, the Terrorism Act 2000, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 are the main pieces of AML law in the UK. As part of the Economic Crime Plan 2019–2022, a review of AML legislation is currently underway, with analysis of information sharing, the suspicious activity reporting (SAR) regime, and AML effectiveness all underway .
US regulatory landscape outlook
From the Bank Secrecy Act of 1970 (BSA) to the Money Laundering Control Act of 1986, and elements of the US PATRIOT Act of 2001, the principal legislation in the United States controlling AML has evolved over time. Smaller changes have also been made, such as the inclusion of virtual currency providers in 2013 and the Client Due Diligence Rule, which requires customer verification, in 2016.
The United States passed a series of bills at the end of 2020 that made substantial revisions and improvements to the AML rules. Some of the new requirements, such as a national beneficial owner registry and whistle-blower safeguards, align the US with existing EU regulations.
Some of the new laws, on the other hand, go beyond those of the European Union and may have an impact on EU firms. Increased fines under the Anti-Money Laundering Act are one example (AMLA). They prohibit knowingly concealing or misrepresenting a material fact about ownership or control of assets for PEPs from or to a financial institution, as well as misrepresenting a material fact about the source of funds in a transaction involving an entity that is a primary money laundering concern.
Violations of such laws can result in up to ten years in prison or a $1 million fine, or both.
You will need to understand UBOs more than ever
Understanding who your customer is and who the UBOs are, as well as the nature of their business, is a critical component in combating money laundering, and of course a regulatory requirement. It’s notoriously difficult to figure out the UBO, especially when clients offer incorrect information or utilise company vehicles in secrecy havens. Even when those lists are made public, as in the case of Companies House in the United Kingdom, the information provided is not always checked .
It can be a time-consuming and costly process for compliance employees to verify customer provided UBO information. Most countries did not publish free, public ownership registries until 2020, making it more difficult to verify information provided to financial institutions. The 5AMLD requires public access to UBO registries, although many member states have either not established or not made those records public.
It will be all about understating your risk profiling
There has been an increasing call to assess whether worldwide anti-money laundering initiatives have resulted in a significant reduction in predicate offences and increased asset forfeiture, or simply increased compliance costs. A renewed focus on specific initiatives, such as including risk-based procedures by both regulators and obliged entities, tying an obliged entity’s risk assessment to national AML priorities, increasing information exchange, and utilising technology, may contribute to increased AML effectiveness.
FinCEN has proposed new regulations in the United States that would compel obligated organisations to complete risk assessments and align their programmes with national interests. The stated goal of the proposed amendment to require a risk assessment is to explicitly link procedures to relevant hazards and give government authorities information that is extremely beneficial.
How can a contingent workforce act as a driver for regulatory change?
Utilising the expertise of contingent resourcing can offer many firms breathing space in terms of resolving any issues their AML controls may have. Setting up the right teams to ensure any gaps are identified will be key for firms this year as regulators place more pressure on financial service participants to strengthen current compliance systems and controls.
