Taking a grip on the new AML-CTF regime implementing into the UK | Wolters Kluwer Financial Services
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  • Taking a grip on the new AML/CTF regime implementing into the UK

    By Steve Blackbourn

    Published July 06, 2017

    The core aims and provisions behind the latest European-led updates on anti-money laundering and counter terrorist financing (AML/CTF) have now been on the change radar for some time since the main ‘Official Journal’ provisions of the 4th anti-money laundering directive (4MLD) were published by the EU back in mid-2015 (2015/849). The 4MLD practicably replacing the provisions introduced some 10 years previous to reflect the developing global guidelines and standards, and to build on the risk-assessment, due-diligence and monitoring practices and the underlying arrangements expected to deliver and ensure an effective and proportionate regime.

    The anti-money laundering and counter-terrorist financing framework and implementing regulations are embodied into the revised money laundering directive (4MLD) and also the Fund Transfer Regulations (FTR). These collective changes, also known as ‘MLR2017’, are expected to come into effect from 26 June 2017. Accordingly, the latest consultation proposals issued in June 2017 by the UK FCA (see FCA CP 17/13) build on (and follows) previous consultation by the UK HM Treasury during late 2016 and earlier in 2017 on how it would look to transpose the new 4MLD and FTR requirements in the UK. 

    Core areas of impact and attention

    1.    Changes and updates affecting levels and measures of due diligence to be applied in regard to the proper assessment of the risks faced by the firm and its business relationships. This ranges from the use of new and enhanced measures in cases deemed to preset higher is as well as the use of a more simplified due diligence approach in specific circumstances that can be reasonably identified and assessed as presenting lower risk(s).       

    2.    Reinforced and expanded obligations in regard to an effective monitoring of transactions and business relationships to identify and report suspicions.  

    3.    Enhanced powers for regulators and supervisors to address and act on compliance failures of and within firms, including the ability of the UK FCA to determine and judge the overall ‘fit and proper’ status of the mechanisms and individuals (responsible officers) engaged in running a range of ‘Financial Institutions’. Importantly, this can even extend to businesses and activities e.g. lending, leasing and custody services not otherwise authorised by the FCA, and gives the FCA the capacity to take unilateral and direct action against both firms and/or individuals implicated or found to be involved in any future contravention(s) which could see them restrict, suspend or even cancel any respective authorisations and/or registrations.   

    4.    Certain firms, service providers and institutions involved in or facilitating payment processing, such banks etc. will be subject to expanded obligations concerning wire transfers (and especially cross-border) involving the collection, transmission and even subsequent verification of related payer and /or beneficiary information.    

    Planning and embedding changes in your organisation

    The usual range of tailored decisions and actions are likely to need to be considered and enacted to adequately analyse, and duly demonstrate and evidence compliance and the closure of any obvious gaps or shortfalls in internal or existing arrangements in place. This includes (but is not limited to):

    a.    Review and update of policy and procedures pertaining to the firm effectively understanding and handling reasonable and perceived AML/CTF threats and risks. For example, this would include any arrangements concerning Politically Exposed Persons (PEP’s) to properly encompass and apply any widened working definition.   

    b.    Suitable updates to internal methodology, processes and tools which enable the firm to competently and proportionately identify, assess and articulate relevant AML/CTF risks and exposures.  

    c.    The modification of any internal risk controls and reporting outputs to support enhanced senior-management and assurance requirements.   

    d.    Updating of staff training material and associated compliance, contractual and performance-management systems which codify and encompass any amended organisational arrangements, practices and expectations. This includes the effective communication of any amended and new documentation and recordkeeping outputs within the organisation.  

    Overall, the provisions of the 4MLD and FTR are designed to promote and embed a more robust and resilient risk-based approach to the AML/CTF landscape operated across the UK. But ultimately, this also aims to reflect and give direct effect to the global developments and standards articulated and advocated by the Financial Action Task Force (FATF).

    Firms will therefore need to challenge and test their own internal approaches and arrangements, given the need to demonstrate and evidence they have a proportionate and effective risk assessment across their business and customer relationships. They should look at their strategic marketing and operational processes and controls e.g. thresholds, to be assured that a satisfactory and working policy towards customer due-diligence (CDD) remains in place, which takes account of reasonable risk circumstances and does not simply allow for blanket exemptions to be applied in practice. But they will also need to ensure that are maintaining and managing specific risks supported by adequate and effective monitoring (and if necessary internal/external reporting) of customer relationships and associated transactions etc. In addition, the changes being made help give effect to an overhaul of expectations and obligations around the level of information and analysis held concerning both legal and beneficial owners/controllers behind business relationships, funds and transactions. 

    The time and need for a clear and measured response

    The FCA plays a core and central role in the UK which underlines its responsibility for both monitoring and enforcing compliance with the laws and regulations governing money laundering and fund transfers. The UK FCA has made clear its overall risk based focus and approach towards supervision and enforcement should not mean that all and any failures in AML/CTF controls will automatically lead to disciplinary sanction(s). But it has equally ensured it has retained within the wording of its intended Enforcement Guide (EG) that where firms have failed to implement and establish adequate steps to identify and appropriately control its risks then potential enforcement action will continue to be more likely!

    The FCA is now looking to issue a final policy statement covering its intended supervisory and enforcement approaches and specific regulatory requirements on this matter during July 2017.

    About the author: Over a 25-year career Steve Blackbourn has undertaken various operational and regulatory roles at senior-management level in a range of international financial services organisations before becoming established as a U.K.-based compliance and financial crime consultant in 2008. Steve has held key positions within a global bank assurance group, an Advanced Risk-Responsive Operating FrameWork (ARROW) supervisory inspection team at the UK FSA and an international life/pensions and investment organisation. Steve has worked and continues to work alongside Wolters Kluwer in delivering project-specific as well as rolling consultancy support services with mutual clients. He is also a regular monthly contributor to Wolters Kluwer Financial's Compliance Resource Network. In addition, he also works with a range of direct clients applying his broad scope regulatory-compliance and financial-crime background and skills to deliver a reliable and quality service with an emphasis on practical approach and commercial orientated solutions.  


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