United Kingdom (and EU regulation)

HM Treasury consults on the reform of the AML/CTF supervisory regime

By Simon Lovegrove (UK), Haney Saadah and Katie Stephen (UK) on June 30, 2023 Posted in Money laundering, United Kingdom

On 30 June 2023, HM Treasury published a consultation paper on the reform of the anti-money laundering and counter-terrorism financing (AML/CTF) supervisory regime.

Introduction

In 2018 the Financial Action Task Force (FATF) published a mutual evaluation report on the UK’s AML/CTF regime. The assessment was positive overall regarding the UK’s implementation of the FATF standards but found the UK’s supervisory regime to be only moderately effective. Specifically, it found significant weaknesses in the risk-based approach to supervision among all the UK AML/CTF supervisors, except for the Gambling Commission.

HM Treasury’s 2022 review of the UK’s AML/CTF regime also concluded that there was a rationale for further reform.

In the Economic Crime Plan (2023-2026) reforming the AML/CTF supervisory regime is a specific action that HM Treasury has committed to deliver, the consultation now published is the next step.

Consultation

The HM Treasury review set out four possible models for a future AML/CTF supervisory system. This consultation further develops these models, assessing them against three consultation objectives.

The four models are:

Model 1: OPBAS+ – This model would involve no structural change to the MAL/CTF supervisory regime. The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) would be given enhanced powers to increase the effectiveness of supervision by the Professional Body Supervisors (PBS). This should capitalise on the improvement in standards brought about by the OPBAS’ activity since its establishment.
Model 2: PBS consolidation – This model would see either two or six PBS retain responsibility for AML/CTF supervision. There could either be one accountancy sector supervisor and one legal sector supervisor, both with UK-wide remits, or one accountancy sector supervisor and one legal sector advisor within each jurisdiction of England and Wales, Scotland, and Northern Ireland. Under either option, there would be a decision required as to whether accountancy firms currently supervised by HM Revenue and Customs (HMRC) should transfer to the consolidated PBS.
Model 3: Single professional services supervisor – This model would see a single body supervise all legal and accountancy sector firms for AML/CTF. It may also supervise some or all of the wider sectors currently supervised by HMRC.
Model 4: Single AML supervisor – Under this model, all AML/CTF supervision in the UK would be undertaken by a single public body. The major difference between this and previous options is that the FCA and Gambling Commission would also stop supervising firms for AML/CTF compliance.

The consultation does not include a policy preference and invites respondents’ views regarding the potential benefits and disbenefits of each potential reform model.

HM Treasury is also using the consultation to gather evidence as to whether there is a need for a more formalised system of sanctions supervision, and how this could interact with the above four model reforms.

Next steps

The deadline for feedback to the consultation is 30 September 2023.

HM Treasury’s 2022 review also proposed some specific amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, aimed at supporting regulated firms to apply a more proportionate, risk-based approach. HM Treasury will begin a consultation on these proposed regulatory amendments by Q4 2023.