How will BREXIT influence new AML practices?

The UK will officially complete its transition out of the European Union on the 31^st December 2020, and many feel the BREXIT preparations have not been adequate, especially in the sense of a trade deal agreement. A no-deal scenario is concerning for many, particularly for compliance in general and AML in particular. So, what does this mean for regulatory compliance? The truth of the matter is that many are not sure how this will impact compliance practices, as key decisions have yet to be made.  The working assumption, therefore, is to assume the UK will be treated as any 3^rd country would be.  So, for AML what we will need to understand is the impact of 5 and 6AMLD.  Here is what we know so far:

Current Brexit negotiations:

Neither the UK nor the EU has given any signs of a new trade agreement being agreed upon. With the seven rounds of talks conducted, hopes of a deal being formulated by the end of September are surely beginning to fade, despite the positive rhetoric coming out of Downing Street. The key issues of fishing and the “level playing field” are still dividing the two sides, with no indication of any progress being made.

One of the biggest concerns for those in financial services is that up to 40 equivalency agreements to allow financial institutions to continue to have full access to EU financial markets, will need to be set up before January 2021 [1]. As there are only a few months until the UK’s exit, many are worried this will not be able to be achieved in time. Market access will be determined on a unilateral assessment by the EU of whether UK regulations are as tough as its own [2].

What about 5AMLD?

The UK will still follow 5AMLD – and benefit from – (a European directive which came into force in January this year) until the transition ends. Once the UK has exited the EU, it will be regarded as a third country, meaning CDD checks and other verification processes will be treated differently and will have an impact on trade post-Brexit. Simplified processes will become more robust and deals will take much longer as a result of additional checks given the UK’s new ‘third country’ status. If no-deal results the UK will need to decide if 5AMLD will still be followed. Should the UK relax its 5AMLD measures it could create a more competitive trade environment, however, there would be more room for potential AML threats to occur.

A warning of Money Laundering increasing post BREXIT

Raconteur reported that according to Transparency International, billions of pounds of illicit cash flow through the British economy every year. This is usually done through money which is laundered by purchasing property and businesses[3].  With new trade agreements, the National Crime Agency has warned that trade outside the EU cou ld result in increased corruption and money laundering, as new trade rulings could also mean a weaker system for criminals to circumnavigate. The UK will need to ensure its usually strong AML practises persist[4].

Ultimate Beneficial ownership confusion

What is of major concern for many when looking at 5AMLD and Brexit is the position of the UBO register. There has been confusion around member states creating their UBO registers that would need to be accessible within 18 months of 5AMLD implementation.  The UK government has lacked to give ample information on how those in financial services, should build the architecture for sharing beneficial ownership information[5]. It is an onerous task to complete and many foresee that there will be pressure between the government and the private sector to ensure transparency around what the new UBO laws will entail.

Will the UK remain in Europol?

The UK is currently part of Europol and has access to the Europol Information System (EIS), which aggregates data from the national crime databases of all member states and is searchable by law enforcement agencies across the EU[6]. Once split from the EU the UK will most likely leave Europol which will mean losing access to the EIS. For the UK to have access, each member state would need to agree on new bilateral agreements. Notably, this would also impact the work of the NCA as they would have significantly reduced access to European intelligence.

Next steps and resolutions

With new laws on trade as well as the policy on AMLD yet to be defined, even more risk of money laundering could persist, and firms will need to ensure that their AML systems are even more resilient post-BREXIT. As clear compliance regulations and agreements with key EU players that have not been defined, many UK financial services players are investing more in their AML systems. 6AMLD is fast approaching and many are preparing to ensure that post BREXIT they are 6AMLD compliant as the updated legislation intends to increase punishments for money laundering. If a deal results or not, one thing is for certain that the UK regulators will keep to their tough AML measures, so if you are looking for lessened AML regulations post-BREXIT, think again.

 

List of citations

[1] The Irish Times. “The Irish Times View on Brexit Negotiations: Talks Remain in Deadlock.” The Irish Times, 19 Aug. 2020, www.irishtimes.com/opinion/editorial/the-irish-times-view-on-brexit-negotiations-talks-remain-in-deadlock-1.4333292. Accessed 20 Aug. 2020.

[2] Brunsden, Jim, et al. “Subscribe to Read | Financial Times.” Www.Ft.Com, 17 Aug. 2020, www.ft.com/content/ae1805a0-b15d-4c2a-8b86-c5b63a4731a2. Accessed 24 Aug. 2020.

[3] Wazir, Burhan. “Money Laundering May Rise after Brexit, Here’s Why.” Raconteur, 14 Mar. 2019, www.raconteur.net/finance/future-money-2019/money-laundering-brexit. Accessed 20 Aug. 2020.

[4] Holdem, Adam. “Will Anti-Money Laundering Compliance Still Apply After Brexit?” Finextra Research, 15 June 2020, www.finextra.com/blogposting/18880/will-anti-money-laundering-compliance-still-apply-after-brexit. Accessed 20 Aug. 2020.

[5] Holdem, Adam. “Will Anti-Money Laundering Compliance Still Apply After Brexit?” Finextra Research, 15 June 2020, www.finextra.com/blogposting/18880/will-anti-money-laundering-compliance-still-apply-after-brexit. Accessed 20 Aug. 2020.

[6] Wazir, Burhan. “Money Laundering May Rise after Brexit, Here’s Why.” Raconteur, 14 Mar. 2019, www.raconteur.net/finance/future-money-2019/money-laundering-brexit. Accessed 20 Aug. 2020.