A HM Treasury report on anti-money laundering (AML) and counter-terrorist financing (CTF) has revealed that 18% of assessed financial services firms and over a third of accountancy firms were non-compliant with the regulations.
The Financial Conduct Authority (FCA), which supervises approximately 18,000 financial services firms in the UK for AML/CTF compliance, found that 4% of firms subjected to desk-based reviews by financial crime specialists in 2022/23 were non-compliant. Additionally, 14% of firms assessed during onsite visits were found to be non-compliant, according to the Treasury report. Common compliance issues identified by the FCA included inadequate client and firm-wide risk assessments, insufficient risk-sensitive or granular due diligence, and poor compliance monitoring.
During 2022/23, the most frequent breaches among accountancy and legal Professional Body Supervisors (PBSs) included insufficient documented policies and procedures, inadequate client risk assessments or records, and a lack of comprehensive firm-wide risk assessments. Of the 34,309 supervised businesses in the accountancy sector, 56% were firms and 44% were sole practitioners.
PBSs noted that a common issue among non-compliant firms was a lack of understanding of the regulations. On average, 17% of those subjected to desk-based reviews and 20% of those visited onsite were found to be non-compliant with money laundering requirements.
Critics argue that UK supervision is not robust enough due to low sanctions, suggesting that effective supervision is only perceived when non-compliance is identified. HMRC supervises estate and letting agencies, art market participants, high-value dealers, money service businesses, and trust and company service providers, as well as accountancy providers not overseen by a PBS. This totals around 35,411 firms.
Of the 1,741 onsite visits and desk-based reviews conducted by HMRC supervisors, approximately 28% resulted in findings of non-compliance. Common issues included inadequate firm-wide risk assessments, policies, controls, and customer due diligence procedures. HMRC’s largest fine during 2022/23 exceeded £1.5 million.
The Financial Action Task Force (FATF), the global standard-setter for AML/CTF regulation, last assessed the UK in 2018, recognising it as one of the strongest regimes assessed to date. However, the FATF also found the UK’s supervision regime to be only “moderately effective” and highlighted specific weaknesses in the risk-based approach among AML/CTF supervisors. In 2022, HM Treasury’s review acknowledged significant weaknesses in the UK’s supervision regime, despite improvements, and called for further reform.
Last year, the Treasury conducted a consultation on systemic reform and plans to publish its findings and next steps “in due course.”
The FATF will begin its fifth round of global assessments on efforts to tackle money laundering and terrorist financing, expected to be published in 2028. UK supervisors conducted 5,253 desk-based reviews and onsite visits in 2022/23, covering 5.5% of AML/CTF-regulated businesses.
Baroness Vere of Norbiton, Parliamentary Secretary to the Treasury, stated in the report that the Treasury is consulting on updates to the Money Laundering Regulations and finalising a new effectiveness regime to “better evaluate the effectiveness of AML/CTF supervision.”
The full report can be viewed here.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
